Why cap rates differ
A cap rate reflects the market's assessment of income stability and risk. Property types with more stable, predictable income tend to trade at lower (compressed) cap rates; riskier or less liquid types require higher cap rates to attract capital.
Approximate ranges by type
These are broad ranges and vary significantly by market: Multifamily apartments: 4–6%. Single-family rentals: 5–8%. Industrial/warehouse: 4–6%. Retail (neighborhood centers): 5–8%. Office: 6–9% (elevated in recent years due to remote work concerns). A well-leased Class A warehouse in a coastal market can trade below 4%; a rural strip center can trade above 10%.
Market matters as much as type
High-demand coastal markets compress cap rates across all property types — sometimes 3–4% for multifamily in gateway cities. Midwest and Sun Belt secondary markets often trade 2–4 points higher for the same asset. Lower cap rate means higher price for the same income stream, reflecting stronger demand and lower perceived risk.
Frequently asked questions
Is a higher cap rate always better?
Not necessarily — a higher cap rate often signals more risk, a weaker location, or less stable tenants.
What cap rate should I target?
Compare cap rates to local alternatives and to your cost of debt. A cap rate below your mortgage rate creates negative leverage.
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.