Gross rent yield vs cap rate is the first distinction a rental investor has to learn, because the two numbers can differ by half. Gross rent yield is a year of rent divided by the home price; the cap rate is net operating income, after taxes, insurance, vacancy, repairs and management, divided by price. As of May 31, 2026, the typical U.S. home was worth $366,072 and rented for $1,931.06 a month, a gross yield of 6.3%, while Detroit, Michigan posted 20.7%, Cleveland, Ohio 13.6% and Birmingham, Alabama 11.4% on Zillow-based data from DataPorium [1]. Those headline yields are real, but the cap rates behind them are far lower, and this note shows how to get from one to the other.
Gross rent yield vs cap rate: the definitions that matter
Gross rent yield answers one question: how much rent does a dollar of price buy? It needs only two inputs, both available for every city and ZIP code, which is why it is the right tool for a first screen. It ignores everything that happens after the rent check arrives. A cap rate answers a different question: what does the property earn after the costs of owning it, before debt? It is the number lenders, appraisers and REIT analysts use, and it is the one that can be compared with a bond yield. On May 31, 2026 the FTSE Nareit All Equity REITs index yielded 3.69% and the 10-year Treasury 4.44% [2]; a cap rate is comparable with those figures, a gross yield is not.
The gap between the two is the operating expense ratio. For a new suburban house with low taxes, expenses might take 30% of rent. For a 1920s house in a city with a 2.6% effective property tax rate, high insurance and frequent turnover, expenses can take half. The higher the gross yield on a screen, the more likely it is that a large expense ratio is hiding inside it.
The top U.S. cities by gross rent yield in 2026
The table ranks large cities by gross rent yield using Zillow's typical home value and observed rent index for all homes and apartments, as of May 31, 2026 [1]. The right-hand columns show two facts a cap rate would capture and a gross yield does not: the share of housing units that were vacant and the change in home values over the previous six months.
| City | Typical rent, May 2026 | Typical home value, May 2026 | Gross rent yield | Housing vacancy rate (2024) | Home value change since Nov 2025 |
|---|---|---|---|---|---|
| Detroit, MI | $1,331 [1] | $77,052 [1] | 20.7% | 21.7% [3] | -4.9% [1] |
| Cleveland, OH | $1,368 [1] | $120,920 [1] | 13.6% | 15.6% [3] | 0.0% [1] |
| Birmingham, AL | $1,311 [1] | $137,858 [1] | 11.4% | 18.8% [3] | -2.0% [1] |
| Baltimore, MD | $1,761 [1] | $189,903 [1] | 11.1% | 13.3% [3] | -1.0% [1] |
| Memphis, TN | $1,222 [1] | $146,863 [1] | 10.0% | 12.7% [3] | -1.0% [1] |
| St. Louis, MO | $1,329 [1] | $186,461 [1] | 8.6% | 16.8% [3] | 0.0% [1] |
| Milwaukee, WI | $1,456 [1] | $227,416 [1] | 7.7% | 10.3% [3] | +2.5% [1] |
| Pittsburgh, PA | $1,538 [1] | $240,326 [1] | 7.7% | 14.7% [3] | -0.6% [1] |
| Oklahoma City, OK | $1,267 [1] | $207,564 [1] | 7.3% | 8.6% [3] | +0.1% [1] |
| Indianapolis, IN | $1,368 [1] | $232,006 [1] | 7.1% | 9.6% [3] | +0.2% [1] |
| United States | $1,931 [1] | $366,072 [1] | 6.3% | n/a | n/a |
| New York, NY | $4,053 [1] | $818,299 [1] | 5.9% | 9.4% [3] | +2.5% [1] |
| Charlotte, NC | $1,731 [1] | $395,282 [1] | 5.3% | 7.6% [3] | -0.5% [1] |
| Los Angeles, CA | $2,773 [1] | $933,806 [1] | 3.6% | 7.4% [3] | -0.8% [1] |
| San Jose, CA | $3,443 [1] | $1,371,870 [1] | 3.0% | 4.8% [3] | -1.5% [1] |
The pattern is consistent: the highest gross yields sit in cities with the highest vacancy rates and the weakest recent price trends. Detroit's 20.7% gross yield comes with a 21.7% housing vacancy rate in the 2024 Census data and a 4.9% fall in typical home values over six months [1][3]. Investors are being paid for risk, not given a free lunch. At the other end, San Jose (3.0%), Los Angeles (3.6%), Charlotte (5.3%) and New York (5.9%) yield less than the national average, with housing vacancy rates of only 4.8% to 9.4% [1][3]; there, buyers pay for scarcity and expected appreciation rather than for income.
From gross yield to cap rate: a worked example
Take the typical Cleveland home at $120,920 renting for $1,368 a month, or $16,418 a year [1]. DataPorium's property tax data put the median effective rate in Cleveland's 44111 ZIP code at 2.64% of value [3], which is about $3,192 a year, or 19% of gross rent before anything else is paid. Add an illustrative 10% vacancy allowance ($1,642), insurance and repairs at $3,000 and management at 8% of collected rent ($1,182), all assumptions for this example, and net operating income is about $7,402. The cap rate is 6.1%, less than half the 13.6% gross yield. The same exercise on the typical U.S. home, with a lower tax rate and a 35% total expense ratio, turns 6.3% gross into about 4.1% net. High-yield markets still win, but by three points, not seven.
Why the cap rate is the number to compare
- It can be set against alternatives. The 10-year Treasury closed at 4.35% on July 1, 2026 [4], and the Federal Reserve held its policy rate at 3.50% to 3.75% on June 17 with inflation still above its 2 percent goal [5]; a 6.1% cap rate offers a premium over the risk-free rate, a 4.1% one barely does.
- It reveals the cost of local policy. High property taxes lower the cap rate directly; a city that taxes 2.6% of value takes a larger share of rent than one that taxes 1%, whatever the gross yield says [3].
- It sets the price a buyer can pay. Dividing NOI by a required cap rate produces a maximum bid; dividing rent by a gross yield produces a number that ignores the building's condition and the city's tax bill.
- It shows whether debt helps. Only when the cap rate exceeds the mortgage rate does borrowing raise the return; gross yield above the mortgage rate proves nothing.
Gross yield keeps a role as the screen. DataPorium's housing market page shows typical rents and home values by state, metro, city and ZIP code, so an investor can rank thousands of markets in minutes [1], then spend the real effort estimating expenses for the few that pass. The market-oriented lesson is that these yield gaps are information: capital flows toward cities where owning property is cheaper after tax and vacancy, and cities that want investment can lower the cost of supplying housing rather than subsidize demand. The counterpoint is that high-yield cities also offer entry prices under $150,000 [1], which lets small investors build a portfolio that coastal prices would never permit.
Gross rent yield tells an investor where to look, and the cap rate tells the investor what to pay.
Key takeaways
- Gross rent yield is annual rent over price; the cap rate is net operating income over price, and the difference is the expense ratio.
- As of May 31, 2026, Detroit (20.7%), Cleveland (13.6%), Birmingham (11.4%) and Baltimore (11.1%) led large U.S. cities in gross yield, against a national 6.3% [1].
- The highest-yield cities also carry the highest vacancy rates (Detroit 21.7%, Birmingham 18.8%) and weak six-month price trends [1][3].
- A 2.64% property tax rate and normal costs cut Cleveland's 13.6% gross yield to a cap rate near 6.1% under illustrative assumptions [1][3].
- Cap rates, not gross yields, can be compared with the 4.35% 10-year Treasury and the 3.69% REIT index yield [2][4].
Frequently asked questions
What is the difference between gross rent yield and cap rate?
Gross rent yield divides a year of rent by the purchase price and ignores costs. The cap rate divides net operating income, which is rent minus taxes, insurance, vacancy, repairs and management, by the price. The cap rate is always lower and is the figure comparable with bond yields.
Which U.S. city has the highest rent yield in 2026?
Among large cities in DataPorium's Zillow-based data, Detroit had the highest gross rent yield at 20.7% as of May 31, 2026, followed by Cleveland at 13.6% and Birmingham at 11.4% [1]. Detroit also had a 21.7% housing vacancy rate in 2024 Census data [3].
What is a good cap rate for a rental property in 2026?
A cap rate should exceed the risk-free rate by enough to pay for vacancy, repairs and illiquidity. With the 10-year Treasury at 4.35% on July 1, 2026 [4], a cap rate in the 6% range offers a meaningful premium; one near 4% does not.
Is a 10% gross rent yield good?
It is well above the national 6.3% [1], but it usually signals older housing, higher taxes or higher vacancy. After a 2.64% property tax rate and normal expenses, a 10% gross yield often becomes a cap rate near 5% to 6% [3].
Sources & References
- [1] DataPorium Housing Market Insights (Zillow home values and rents by city)
- [2] Nareit: REITs Maintain Year-to-Date Performance Lead Over Broader Markets (June 3, 2026)
- [3] DataPorium Real Estate: property finder with Census demographics and property tax rates
- [4] U.S. Treasury Daily Par Yield Curve Rates, July 2026
- [5] Federal Reserve: FOMC Statement, June 17, 2026
