What is a good Cap Rate for a rental property

[Andrew Michaud]

I am trying to evaluate a property, and I'm curious what many call an ideal or excellent cap rate for a rental property. Is it 8%?

[Immanuel Sibero]

@Andrew Michaud

I would be interested in performance metrics such as Cash on Cash, Annual Cashflow, IRR, even the good old 1%/2%. With current such current technology as Google sheet, Excel, these metrics are easy to build and calculate.

Cap Rate (i.e. capitalization rate) is a valuation metric, not a performance metric as such it is a terrible metric to use to determine which property performs better/best. Also, cap rate is determined by the market. It is a measure of how investors view the desirability (or lack thereof) of a particular property in a particular market. It is more of a measure of investor sentiment (i.e. bullish/bearish) of a certain market. Cap rate is even less relevant when evaluating residential properties such as single family homes, duplexes, triplexes and fourplexes. It is a metric used in the commercial space.

So what's a good cap rate? Well there really is no such thing.

Cheers... Immanuel