What Is a Good ROI on a Rental Property? Real Benchmarks

Ask three investors what a good ROI on a rental property is and you will hear "anything over 8%," "double digits or walk," and "my index fund pays 10% and never calls about a water heater." All three are right, and all three are answering different questions, because ROI on a rental is not one number. It is at least three, and each one has its own benchmark.

The short version: 8% to 12% cash-on-cash is what most investors call good on new money, residential cap rates mostly run 5% to 8%, and the number almost nobody checks, return on equity, is where good deals quietly rot into bad ones. Here are the formulas, the benchmarks, and the worked math for each, plus the free rental ROI calculator that runs all of them at once.

The benchmarks, up front

Metric	Formula	Typically called good	What it actually measures
Cash-on-cash return	annual cash flow ÷ cash invested	8% to 12%	what your cash is earning this year
Cap rate	NOI ÷ property value	5% to 8%	the property itself, ignoring financing
ROE, operations	(cash flow + principal paydown) ÷ equity	8%+	whether your equity is earning its keep
ROE, total	operations + appreciation	12%+	your full annual return, on paper

The published ranges elsewhere ("5% to 10%," "8% to 12%," "15% in the right market") disagree mostly because they are quoting different formulas without saying so. That is fair, and the ranges are all reasonable for what they measure. But chasing the benchmark before picking the denominator is backwards. So the useful move is to walk through what each number means on one concrete property, and then decide which benchmark applies to your situation.

One property, every formula

Take a rental worth $400,000 with a $250,000 loan at 6.5%. You put in $90,000 of cash (down payment, closing costs, initial repairs). It collects $42,000 a year in rent and costs $13,000 a year to operate: property taxes, insurance, repairs, management, the works, but not the mortgage. Annual principal and interest run $20,000.

These are the default inputs in our ROI calculator, so you can follow along and then swap in your own numbers. Here is what falls out:

1. Net operating income (NOI) = $42,000 − $13,000 = $29,000. Rent minus operating expenses, before the mortgage. Every other metric builds on this.
2. Cap rate = $29,000 ÷ $400,000 = 7.25%. What the property earns as a property, no financing involved.
3. Cash flow = $29,000 − $20,000 = $9,000. What actually lands in your account after the lender is paid.
4. Cash-on-cash return = $9,000 ÷ $90,000 = 10.0%. What your invested cash earned this year. Inside the good range.
5. Principal paydown = of the $20,000 payment, about $16,250 is interest ($250,000 × 6.5%) and about $3,750 pays down the loan. That is equity you build, so it is return, just not spendable.
6. ROE on operations = ($9,000 + $3,750) ÷ $150,000 of equity = 8.5%.
7. ROE with 3% appreciation = ($9,000 + $3,750 + $12,000) ÷ $150,000 = 16.5%.

Same property, same year: 7.25%, 10%, 8.5%, or 16.5%, depending on the question you ask. A "good ROI" claim that does not name its formula is not saying much.

Cash-on-cash: the benchmark for new money

If you are evaluating a purchase, cash-on-cash is the number to hold to a standard, because it measures the thing you still control: whether to put your cash into this deal at all. The 8% to 12% range earned its status. Below 8%, you are taking on tenants, vacancy, and 2 a.m. plumbing for a return you can approach in far lazier assets. Above 12% on paper, read the assumptions twice: underpriced rent risk, deferred maintenance, or a neighborhood the spreadsheet is politely ignoring.

Two rules make the number mean something:

• Count all the cash. The denominator is down payment plus closing costs plus every dollar of make-ready repairs. Leaving out the $15,000 renovation is the most common way a 7% deal gets reported as 9%.
• Count all the expenses. Budget vacancy (5% of rent is a sane floor), repairs, management even if you self-manage today, insurance, and taxes. The difference between gross yield and fully loaded cash-on-cash is routinely four or five points.

At 2026 mortgage rates, fully loaded cash-on-cash on a newly purchased, conventionally financed single-family rental is thin in many markets. That is not a reason to fudge the inputs. It is a reason to be picky, which is what the benchmark is for.

Cap rate vs ROI: the property vs the deal

Cap rate gets used interchangeably with ROI and it is not ROI. It deliberately ignores your mortgage, which makes it useful for exactly one thing: comparing properties to each other without the financing muddying the water. A 7.25% cap in a market of 5.5% caps is a strong property or a mispriced one; the same building looks identical on cap rate whether you paid cash or borrowed 90%.

The benchmark question, "what is a good cap rate on a rental property," has a two-part answer. Residential caps mostly sit between 5% and 8%, with the low end in expensive high-appreciation metros and the high end pricing in risk or slow growth. But the more decision-relevant test is the spread against your borrowing cost. Our example buys a 7.25% cap with 6.5% money: positive leverage, the loan amplifies the return. Buy a 5.5% cap with that same loan and the leverage runs backwards, which is how investors end up feeding a "good" property cash every month. Sub-1% spreads are the quiet reason so many 2026 deals pencil badly. If you want the tax-side reason thin deals still sometimes work, that story is below.

Return on equity: where good deals go stale

Here is the number the top-ranking articles on this topic skip entirely, and it is the one that changed how we run our own portfolio.

Cash-on-cash uses the cash you put in years ago, frozen at that amount forever. But your actual stake in the property today is your equity at market value, and it grows every year through paydown and appreciation. Return on equity asks: what is that equity earning now?

Run the example forward ten years at 3% appreciation. The property is worth about $537,000, the loan has amortized to about $212,000, so equity is about $325,000, up from $150,000. Suppose cash flow grew to a healthy $20,000 and principal paydown to $5,000. ROE on operations is $25,000 ÷ $325,000 = 7.7%, down from 8.5%, and if rents lagged the market at all it lands in the fives. The property did nothing wrong. Cash flow more than doubled. But the equity more than doubled too, and equity earning 5% to 7% in a rental is money you would never deploy that way on purpose today.

We learned this on our own books. Running our two-property portfolio through the app, market equity came to roughly $670,000 while the books carried about $505,000 at cost basis. Every return we had been feeling good about was implicitly computed on the smaller, stale number. Recomputing on what the equity was actually worth knocked points off, and that reframe, not any change in the properties, is what pushed us to model selling versus holding versus exchanging seriously. The sell, hold, or 1031 calculator is the tool we built to run that decision.

A practical bar: when operations ROE (cash flow plus paydown, divided by market-value equity) drops below about 8%, the equity goes up for review. The options are refinance and redeploy, sell and release, or accept the lower return deliberately because the asset is appreciating or the loan is irreplaceable. Any of those can be right. Not knowing the number is the only wrong answer.

Taxes move the answer more than the benchmarks do

Every formula above is pre-tax, and rentals are one of the few assets where pre-tax badly understates the real return, or occasionally overstates it.

The understatement comes from depreciation. The IRS lets you deduct the building (not the land) over 27.5 years, per Publication 527, as a paper expense against rental income. On our example property, say $320,000 of the $400,000 is building: that is $11,636 a year of deduction against $9,000 of actual cash flow. The cash lands in your account and, on paper, the property shows a small loss. At a 24% marginal rate, sheltering $9,000 of income is worth about $2,160 a year, which quietly lifts the 10% cash-on-cash to roughly 12% after tax. The mechanics are in our rental property depreciation guide.

Two catches from our own filings, because the shelter is not automatic:

• The land split can gut it. Depreciation only covers the building, and the building share comes from your county's assessment ratio unless you have a better basis. When we extracted the numbers from our own filed return, one property's assessment allocated 81.5% of value to land. Only 18.5% of the basis was depreciable, and the paper shelter most articles promise barely existed for that building. Check the ratio before you count the tax benefit in your ROI.
• Paper losses may be locked anyway. Rental losses are passive, and above $150,000 of income they generally cannot offset your W-2 wages; they suspend and carry forward (the $25,000 allowance and its phaseout covers the details). Our own books carry $206,589 of suspended losses accumulated exactly this way. They are not lost, they release when a property sells, but a deduction you cannot use this year should not be inflating this year's ROI.

The overstatement case is the flip side: rental profit is at least passive income free of self-employment tax, but profitable properties still owe income tax on cash flow once depreciation runs thin, and appreciation comes with capital gains and depreciation recapture at sale. After-tax ROI is the only version that is actually yours.

The four mistakes that inflate a reported ROI

Having reviewed a lot of deal spreadsheets (and having caught our own books doing two of these), the same four errors account for most of the gap between the ROI people quote and the ROI they earn:

1. Gross yield dressed up as ROI. Annual rent divided by property value is not a return, it is a top-line ratio. Our example property has a 10.5% gross yield and $9,000 of actual cash flow. Skip the $13,000 of operating expenses and the 10% cash-on-cash inflates to a fictional 24%.
2. A cash denominator missing half the cash. Closing costs and make-ready repairs are invested cash, the same as the down payment. Dividing by the down payment alone flatters every deal by a point or two.
3. Zero vacancy, zero repairs. Twelve months of rent every year and a building that never breaks. Budgeting 5% vacancy and a real maintenance line moves most spreadsheets by multiple points, and it is exactly the error a year of real bank transactions exposes.
4. Counting appreciation as if it were cash. It compounds your net worth and it is genuinely part of total return, but it pays no mortgage in a flat year. Underwrite on operations; treat appreciation as the upside case.

The common thread: every mistake flatters the numerator or shrinks the denominator. Real bookkeeping, where the ROI comes from categorized bank transactions instead of projections, is the difference between a pro-forma return and one you can defend.

So what should you call good?

My bar, having run these numbers on our own properties and built the calculator that automates them:

1. New money: 8% or better cash-on-cash, all cash counted, all expenses counted. In line with what most investors hold out for, and thin markets do not change the bar, they change how many deals clear it.
2. The property itself: a cap rate above your mortgage rate. Negative leverage needs an explicit appreciation thesis, in writing, or it is a pass.
3. Old equity: 8% or better operations ROE on market-value equity, reviewed annually like any other position. US home prices have averaged roughly 4% annual appreciation over the long run (the FHFA house price index has the actual series), and that rides on top for total return, but appreciation is the dessert, not the meal.

A good ROI on a rental property is not a single percentage. It is clearing the right benchmark for the right formula at the right stage of ownership. Put your own numbers into the rental ROI calculator, all eight inputs take about a minute, and see which of the three questions your property is answering well, and which one it has been quietly failing.