Two Phoenix apartment buildings can have nearly the same price and very different returns. The difference usually comes down to where they sit. A fourplex in Glendale and a fourplex in Scottsdale may look similar on paper, but rents, buyer demand, and operating costs can push their cap rates far apart.
Cap rate is one of the first numbers investors use to compare properties. Here is how to calculate it correctly, what current Phoenix benchmarks show, and how the math can change from one submarket to the next.
2026 Phoenix Cap Rate Snapshot
Key Takeaways
- Cap rate equals net operating income (NOI) divided by purchase price. It does not include mortgage payments.
- Northmarq reported Phoenix Class A cap rates averaging about 5.0% and Class C cap rates of roughly 6.5% to 7.0% in Q1 2026.
- Higher-rent submarkets like Scottsdale often trade at lower cap rates because buyers may pay more for location and stability.
- Using real rents and realistic expenses matters more than any benchmark.
- Cap rate is a starting point, not a full investment analysis.
What a Cap Rate Measures
A capitalization rate, or cap rate, shows the yearly return a property may produce if you bought it with all cash. It is calculated as net operating income divided by the purchase price.
A common mistake is dividing rent by price. Rent is not income after expenses, so that shortcut can make a property look far better than it is. Cap rate also leaves out financing, so it lets you compare properties on equal footing before loan terms enter the picture.
How to Calculate a Cap Rate Step by Step
Cap rate = Net operating income ÷ Purchase price
- Gross potential rent = number of units x monthly rent x 12
- Subtract vacancy and credit loss to get effective gross income
- Subtract operating expenses (taxes, insurance, repairs, management, utilities you pay, reserves)
- The result is NOI. Do not subtract mortgage payments.
- Divide NOI by the purchase price
Operating expenses for small multifamily properties often land somewhere between 35% and 50% of effective gross income, depending on the property's age, condition, and which utilities the owner pays. Use the property's actual records when you can, and treat any rule of thumb as a rough check only.
What Phoenix Cap Rates Look Like in 2026
According to Northmarq's Q1 2026 Phoenix report, Class A properties traded at a median of about $343,000 per unit with cap rates averaging about 5.0%. Class C properties sold closer to $160,000 per unit, with cap rates generally between 6.5% and 7.0%. Sales inside the city of Phoenix were concentrated in the Midtown and Camelback submarkets.
Lender surveys show a similar spread. As of August 27, 2026, Apartment Loan Store's Phoenix cap rate survey listed suburban Class A at 4.75%, Class B at 5.18%, and Class C at 5.65%, with value-add acquisitions at 6.86%. Sources measure differently, so we cite each figure to its source rather than treating one as final.
Phoenix Multifamily Cap Rates by Property Class
Northmarq, Q1 2026; Lender survey (suburban), Aug. 27, 2026. Northmarq does not break out Class B. Sources: Northmarq Q1 2026 Phoenix Multifamily report; Apartment Loan Store Phoenix cap rate survey, Aug. 27, 2026.
Comparing Three Phoenix Submarkets
Rents vary widely across the Valley. RentCafe's Phoenix rent data (updated August 31, 2026) showed these average apartment rents:
- Glendale: $1,374
- Mesa: $1,484
- Phoenix citywide: $1,494, down 1.88% from a year earlier
- Tempe: $1,821
- Scottsdale: $2,033
- Downtown Phoenix: $2,052
Average Apartment Rent by City, Phoenix Area
Higher-rent areas often trade at lower cap rates. Source: RentCafe average apartment rents, updated August 31, 2026.
Hypothetical example for illustration only. Imagine three 8-unit buildings. Each assumes 7% vacancy and operating expenses at 40% of effective gross income. Prices use Northmarq's Q1 2026 per-unit figures as rough guides.
The Scottsdale building produces the most income, but it also costs the most, so its cap rate is the lowest. That pattern is common. Buyers may accept a lower cap rate in high-demand areas in exchange for stronger tenant demand, lower expected vacancy, or long-term appreciation. In more affordable submarkets, a higher cap rate may come with more turnover, older buildings, or higher repair costs.
A higher cap rate is not automatically a better deal. It is often the price of more risk.
Common Cap Rate Mistakes
Watch Out
Seller pro formas often use future rents and low expenses. Rebuild the numbers using actual rent rolls, current insurance quotes, and the tax bill you will pay after purchase.
- Using asking rents instead of collected rents
- Leaving out vacancy, management fees, or capital reserves
- Using the seller's property tax bill instead of estimating your own
- Confusing cap rate with cash-on-cash return, which includes financing
- Comparing a Class A cap rate to a Class C property
Arizona taxes also deserve a close look. Arizona generally limits how much a property's taxable limited property value can rise each year, but rates and assessments still change, so confirm estimates with the county assessor. Arizona's ban on city rental sales taxes, effective January 1, 2025, also changed how some owners handle rent-related taxes.
Financing structure can change your actual return, too. Seller financing or subject-to purchases may improve cash flow on a property with a modest cap rate, subject to legal review and lender requirements.
The Key Principle
Cap rate helps you compare properties, but location changes what a fair cap rate looks like. Compare a property to others in the same submarket and class.
Frequently Asked Questions
- It depends on the class and submarket. Northmarq reported about 5.0% for Class A and roughly 6.5% to 7.0% for Class C in Q1 2026. A good cap rate is one that fits your risk tolerance and matches similar properties nearby.
- No. Cap rate uses NOI before debt service. To include financing, look at cash-on-cash return or debt service coverage.
- Higher rents and strong demand often push prices up faster than income, which lowers cap rates. Buyers may accept that for stability and appreciation potential.
- You may be able to increase NOI by raising below-market rents, reducing vacancy, or cutting expenses, which raises the cap rate based on your purchase price. Results depend on the property and market.
Put Phoenix Cap Rates to Work for You
Cap rates are most useful when you compare properties inside the same submarket and class, using real numbers. A careful calculation can help you avoid overpaying and spot opportunities others miss. For a broader look at the market, see our analysis of Phoenix multifamily rents.
Want help running the numbers on a Phoenix property?
At Rosenbaum Realty Group, we help multifamily investors across Phoenix review rent rolls, estimate operating costs, and manage properties for long-term income, including creative options like seller financing. Request a free rental analysis or contact our team today.
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