The Answer Depends on What You're Measuring
"What's a good ROI?" is the most common question I get from new investors. The frustrating answer: it depends on which ROI you're talking about. There's a cash-on-cash return (your cash flow relative to what you put in). There's a cap rate (the property's yield before financing). There's total ROI (including appreciation and principal paydown). And there's IRR (your annualized return over the entire hold). Each tells you something different. A property can have a 5% cash-on-cash but a 20% total ROI. Another might show 10% cash-on-cash but deliver only 12% total return. You need to know which number matters for your strategy.
Here's what "good" looks like for each metric in 2026—based on current market data and what experienced investors are actually targeting.
Cash-on-Cash Return Benchmarks
What it measures: Annual cash flow divided by your total cash invested. This is your "dividend" from the property - what actually hits your bank account after all expenses and debt service.
| Cash-on-Cash | Rating | What It Means |
|---|---|---|
| Below 5% | Weak | Barely beating savings accounts. Only makes sense in high-appreciation markets. |
| 5% – 7% | Acceptable | Typical for coastal/appreciation markets. Low risk, lower reward. |
| 8% – 12% | Target Range | The sweet spot most investors aim for. Solid cash flow with reasonable risk. |
| Above 12% | Excellent (or risky) | Great if real. Double-check the numbers—high returns often come with hidden problems. |
2025-2026 reality check: Current single-family rental yields average 7.45% annually (down from 7.52% in 2024). With investment property rates around 7-8% and typical 65% LTV financing, many buyers end up with less than 4% cash-on-cash after debt service. The target range is achievable, but you'll need to work harder - or bring more cash- to hit it.
Cap Rate Benchmarks
What it measures: NOI divided by purchase price. This is the property's unlevered yield - what you'd earn if you paid all cash. It lets you compare properties regardless of how they're financed.
| Market Type | 2025-26 Cap Rate | Examples |
|---|---|---|
| Major coastal metros | 3.9% – 5% | SF Peninsula (3.88%), NYC, LA, Seattle |
| Growing Sunbelt cities | 5% – 6.5% | Fort Lauderdale (6.27%), Phoenix, Tampa, Raleigh |
| Secondary/Midwest markets | 6.5% – 8% | Cleveland, Memphis, Indianapolis, Pittsburgh |
| High-yield/higher-risk | 8% – 10%+ | Jackson MS (8.5%), Youngstown, smaller tertiary markets |
2025-26 context: The national average cap rate hit 5.04% in September 2025 (across $41B in sales). There's a 200+ basis point spread across markets. A 3.88% cap in San Francisco means a 26-year payback, while Fort Lauderdale's 6.27% offers faster returns in roughly 16 years. Cap rates are expected to compress slightly in 2026 as credit loosens.
IRR Benchmarks
What it measures: Your annualized return over the entire hold period. Accounting for cash flow, appreciation, principal paydown, and eventual sale. This is the most comprehensive measure - but also the hardest to project accurately.
| IRR Range | What It Means |
|---|---|
| Below 10% | Underperforming. Could've done better in index funds with less work. |
| 10% – 14% | Solid. Outperforming stocks with real estate's stability and tax advantages. |
| 15% – 20% | Excellent. This is what experienced investors target for buy-and-hold. |
| Above 20% | Exceptional (or optimistic). Common in value-add deals or flips. Verify assumptions carefully. |
Note: IRR is highly sensitive to your hold period and exit assumptions. A property projecting 18% IRR over 5 years might only deliver 12% if you hold 10 years and appreciation slows. Be conservative with your projections.
Total ROI: The Full Picture
Most investors focus only on cash flow. But rental returns come from four sources:
- Cash flow – what you pocket monthly (often 3-6% of cash invested)
- Appreciation – property value growth, amplified by leverage (often 10-16% of cash invested in growing markets)
- Principal paydown – your tenant paying down your mortgage (typically 4-6% of cash invested)
- Tax benefits – depreciation sheltering income (typically 2-3% of cash invested)
Add them up and a property with modest 5% cash-on-cash can deliver 20-25% total ROI. That's the power of leverage and the full return equation that makes real estate compelling.
What "Good" Looks Like By Strategy
| Strategy | Cash-on-Cash | Cap Rate | Target IRR |
|---|---|---|---|
| Cash flow focused | 8-12% | 7-9% | 12-15% |
| Balanced (cash flow + growth) | 5-8% | 5.5-7% | 14-18% |
| Appreciation focused | 3-6% | 4-5.5% | 15-20%+ |
| Value-add/BRRRR | 10-15%+ | 8-10%+ | 18-25%+ |
The 2025-26 Reality Check
Hard truths from current market data:
- Single-family vacancy hit a 7-year high. SFR vacancy passed 7% in 2025 - the highest since 2018. Combined with rent growth at 15-year lows, cash flow margins are getting squeezed.
- Rent growth is modest. Freddie Mac forecasts 2.2% rent growth for 2025—below the long-term average of 2.8%. Don't underwrite aggressive rent increases.
- The 1% rule is mostly extinct. In most markets, you won't find properties where rent equals 1% of the purchase price. Accept 0.6-0.8% in growing markets.
- Multifamily is outperforming. Multifamily posted 5.48% returns in Q3 2025, beating the broader property index for the 6th straight year. Small multifamily
- Pro formas still lie. Seller materials routinely overstate income by 10-15% and understate expenses by 20-40%. Run your own numbers. Always.
Run Your Own Numbers
Every deal is different. Market averages are just starting points. What matters is the specific property in front of you. The FourCasa Property Evaluator calculates cash-on-cash, cap rate, NOI, and projected IRR automatically. Plug in an address, add your assumptions, and see whether a deal hits your benchmarks - or falls short. It's free and takes about five minutes.
Bottom Line
There's no single "good" ROI - it depends on which metric you're measuring and what strategy you're running. But here's a quick cheat sheet for 2026:
- Cash-on-cash: Target 8-12%, accept 6-7% in strong markets
- Cap rate: 5-7% in growth markets, 7-9% in cash flow markets
- IRR: 15-20% for buy-and-hold, higher for value-add
- Total ROI: 20%+ when you add appreciation, paydown, and tax benefits
Know your benchmarks. Run the full numbers. And don't settle for a deal that doesn't hit your targets.
Calculate your property's ROI with the free Property Evaluator at fourcasa.com.