The Return Before Financing
Cap rate measures a property's return before financing — Net Operating Income divided by purchase price.
NOI ÷ Purchase Price = Cap Rate
Example: a property with $400,000 in NOI selling for $5,000,000 has an 8% cap rate.
Generally speaking: below 5% usually means a premium location or a newer, well-maintained asset. 5-6% is common in stronger, more stable markets. 6-8% is often considered attractive, depending on the property's condition. Above 8% can signal real opportunity — or it can signal deferred maintenance, management problems, or higher risk. Worth finding out which before you get excited.
Small apartment buildings in Palm Beach County don't always follow national averages — insurance costs, property taxes, and local rent growth all move the number in ways a generic chart won't show you. Cap rate is a useful starting point, but it never tells the whole story on its own.
This is general information, not investment advice. I track cap rates on small apartment sales across Palm Beach County as part of my quarterly Small Apartment Report — if you want current numbers for your specific submarket, reach out.
