A good ROI on rental property is 8–12%. But that answer depends on which type of ROI you are measuring, and most people asking this question are actually asking about four different things at once.

  • Cash-on-cash return: your annual cash flow relative to the cash you put in
  • Cap rate: the property's yield before financing, useful for comparing deals across markets
  • IRR: your annualized return over the full hold period, including appreciation and eventual sale
  • Total ROI: everything combined — cash flow, appreciation, principal paydown, and tax benefits

Each tells you something different. A property can show 5% cash-on-cash and 20% total ROI at the same time.

Target ranges at a glance

Metric
What it measures
Target range
Cash-on-cash return
Annual cash flow / cash invested
8–12%
Cap rate
NOI / purchase price, before financing
5–8% (market dependent)
IRR
Annualized return over the full hold period
15–20% for buy-and-hold
Total ROI
Cash flow + appreciation + paydown + tax benefits
20%+ in most growing markets

Cash-On-Cash Return

Cash-on-cash is the number most landlords mean when they ask about ROI. It measures your annual cash flow relative to the cash you actually invested:

Cash-on-cash = (Annual pre-tax cash flow / Total cash invested) × 100

Cash flow means what is left after every expense and the mortgage payment. Total cash invested means your down payment, closing costs, and any upfront repairs.

Not total equity in the property. The cash that actually left your bank account to close the deal.

Cash-on-cash
What it signals
Verdict
Below 5%
Barely beating savings accounts
Thin: only makes sense in high-appreciation markets
5–7%
Typical for coastal and appreciation-driven markets
Acceptable
8–12%
Solid cash flow with reasonable risk
Target range
Above 12%
Excellent, or something was underestimated
Verify all expenses are fully loaded

2025-26 reality check: Single-family rental yields average 7.45% annually as of 2025, down from 7.52% in 2024, according to Global Property Guide.

With investment property mortgage rates around 7–8% and typical 65% LTV financing, many buyers end up below 4% cash-on-cash after debt service.

The target range is achievable, but it requires either buying below market value or bringing more cash to closing.

What the math actually looks like

Here is a worked example on a real deal.

  • $220,000 single-family in Indianapolis.
  • 20% down ($44,000) plus $3,500 in closing costs
  • $47,500 total cash invested
  • Rent: $2,000/month ($24,000/year).
Expense
Annual
Property taxes
$2,400
Insurance
$900
Maintenance (1% of value)
$2,200
Vacancy allowance (5%)
$1,200
Mortgage P+I ($176k at 7%, 30yr)
$14,052
Total
$20,752

Annual cash flow: $3,248. Cash-on-cash return: 6.8%.

That is on the lower edge of comfortable. Here is why: at 7% mortgage rates, debt service is eating most of the margin. The same property in 2020 at 3.5% would have had a monthly P+I of $790 instead of $1,171. Annual mortgage cost drops by $4,572. Cash-on-cash return jumps to around 15%.

Same property. Same rent. Same tenant. Just a different borrowing rate.

This is why experienced landlords do not buy a deal that only pencils at low interest rates. The property has to stand up at current rates, not ones you wish still existed.

6% vs 8% vs 10%: Which is actually good?

10% is above the national average and a sign the deal is genuinely working.

  • In major metros like Los Angeles, Seattle, or New York, reaching 10% cash-on-cash on a financed property is rare.
  • In cash-flow markets like Memphis, Cleveland, and Indianapolis, it is achievable if you buy right.

At today's mortgage rates (around 7%), 8% cash-on-cash is a win and worth holding when you find it. A 6% return can be either good or bad depending on what you are measuring.

  • A 6% cash-on-cash return leaves limited margin. One major repair, one extended vacancy, or one problem tenant can push you into negative cash flow for the year.
  • A 6% net ROI on a cash purchase in a fast-appreciating market can still build serious wealth over time. On a financed property in a flat or declining market, it is harder to justify.
Note: Most experienced landlords say they need at least 8% to sleep well at night.

Cap Rate

Cap rate measures the property's yield before financing. It answers: what would this property return if you paid all cash?

Cap rate = (Net operating income / Purchase price) × 100

Because it strips out the mortgage, cap rate lets you compare properties across markets regardless of how they are financed. It is also how commercial sellers price their listings.

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 and Midwest markets
6.5–8%
Cleveland, Memphis, Indianapolis, Pittsburgh
High-yield and higher-risk markets
8–10%+
Jackson MS (8.5%), Youngstown, smaller tertiary markets

The national average cap rate hit 5.04% in September 2025 across $41B in sales, according to CBRE's US Cap Rate Survey.

There is a 200+ basis point spread between markets.

  • A 3.88% cap in San Francisco means roughly a 26-year payback on the purchase price.
  • Fort Lauderdale's 6.27% cap offers payback in around 16 years.

Cap rates are expected to compress slightly in 2026 as credit loosens.

IRR: Your Full-hold Return

IRR (internal rate of return) measures your annualized return over the entire time you hold the property. It accounts for cash flow, appreciation, principal paydown, and the eventual sale price.

It is the most complete picture of a deal, and also the hardest to project accurately before the fact.

IRR range
What it means
Below 10%
Underperforming. Could have 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 and 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 exit numbers.

Total ROI: The Full Picture

Most landlords focus only on monthly cash flow. But rental returns come from four sources at the same time:

  • Cash flow: what you pocket monthly after all expenses and debt service (often 3–6% of cash invested annually)
  • Appreciation: property value growth, amplified because you are controlling a large asset with a fraction of its price (often 10–16% of cash invested in growing markets)
  • Principal paydown: your tenant is paying down your mortgage each month (typically 4–6% of cash invested per year)
  • Tax benefits: depreciation shelters income from tax (typically 2–3% of cash invested annually)

Add those up, and a property with a modest 5% cash-on-cash can deliver 20–25% total ROI.

That is why real estate wealth compounds faster than most people expect, and why a deal that looks weak on cash flow alone can still be an excellent investment when you run the full numbers.

What A Good ROI Looks Like by Strategy

The right benchmark depends on what you are trying to build.

A cash-flow investor and an appreciation investor are buying different types of deals, in different markets, and measuring success differently.

Strategy
Cash-on-cash target
Cap rate target
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%+

2025-26 Market Reality

A few things worth knowing before you run any pro forma:

  • Single-family vacancy hit a 7-year high. SFR vacancy passed 7% in 2025, the highest since 2018. Combined with rent growth at multi-year lows, cash flow margins are under pressure in many markets.
  • Rent growth is modest. Freddie Mac forecasts 2.2% rent growth for 2025, below the long-term average of 2.8%. Do not underwrite aggressive rent increases into your numbers.
  • The 1% rule is mostly gone. In most markets, you will not find properties where the monthly rent equals 1% of the purchase price. Accept 0.6–0.8% in growing markets and run the actual numbers.
  • Multifamily is outperforming. Multifamily posted 5.48% total returns in Q3 2025, beating the broader property index for the sixth straight year. Small multifamily (2–4 units) remains the most accessible entry point for individual investors.
  • Seller pro formas are usually wrong. Listing materials routinely overstate income by 10–15% and understate expenses by 20–40%. Always run your own numbers from actual rent rolls and utility bills.

Know Your Actual Numbers

Every benchmark above is a starting point. What matters is the specific property in front of you, and after you own it, what is actually happening in your bank account month by month.

Most landlords who own two or more properties find tracking this gets messy fast. Receipts pile up. Bank statements mix personal and rental income. By the time tax season arrives, the estimate and the reality are rarely the same number.

FourCasa's Property Evaluator calculates cash-on-cash, cap rate, NOI, and projected returns automatically. Connect your bank account, and Casey, FourCasa's AI, categorizes income and expenses throughout the year so your numbers are always current, not just approximated at year-end.

If you want to see what your current properties are actually returning, start a free FourCasa account. The next deal will be a lot easier to evaluate once you know your real baseline.

Sources

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