DSCRWhat a “6 cap” means
When an investor or broker calls a deal “a 6 cap,” they mean the property’s net operating income equals 6% of its value. A $300,000 property throwing off $18,000 of NOI is a 6 cap, because $18,000 ÷ $300,000 is 0.06. Higher cap rate means more income per dollar of price.See the formula →
How investors use cap rate
Four jobs cover almost every use:
- Compare deals on a like-for-like basis, regardless of financing.
- Compare markets. Cap rate is one of the four inputs to our Investor Yield Index, alongside gross yield, DSCR, and cash-on-cash.
- Value a property. Given a market cap rate and an NOI, you can divide to back into a price.
- Track compression and expansion. Falling cap rates mean prices are rising faster than rents.
Where cap rates sit right now
In the seed data behind our Index, the 18 metros we track run from about 3.5% to 5.7% on cap rate. The highest reading is Greater Cleveland near 5.7%, where a roughly $185,000 home rents for about $1,470 a month. None of the tracked metros reaches a clean 6 cap, which is part of why so few clear a lender’s 1.2 DSCR at today’s 6.8% mortgage rate. These figures are placeholder data, not live quotes, and are labeled that way across the site.
The limits of cap rate
Cap rate ignores financing, appreciation, tax benefits, and the condition of the property. It is a snapshot, not a full return. Two properties with identical cap rates can produce very different real returns once you account for the mortgage and rent growth. That is why a deal worth buying gets paired with cash-on-cash and thefull deal analysis.