What Is a Good ROI on a Rental Property?
September 2, 2026There's no single universal number that defines a "good" ROI on a rental property — the right benchmark depends on your market, financing structure, and investment goals. That said, there are common frameworks and typical ranges that give real investors a useful reference point rather than a guess.
How rental property ROI is actually calculated
The simplest version is annual return divided by total cash invested: (Annual rental income − annual expenses) ÷ total cash invested × 100. If you invested $50,000 in cash (down payment plus closing costs and initial repairs) and your property nets $5,000 per year after all expenses including mortgage payments, your cash-on-cash ROI is 10%.
This "cash-on-cash" version is the most commonly used ROI metric for financed rental properties, since it reflects the actual return on the money you put in, not the full property value.
What's generally considered a solid range
Many real estate investors target a cash-on-cash ROI somewhere between 8-12% as a solid baseline, with anything above that considered strong, and anything meaningfully below (say, under 5-6%) prompting a closer look at whether the deal, financing, or market makes sense. These aren't hard rules — some investors accept lower cash returns in exchange for stronger long-term appreciation potential in a high-growth market, while others prioritize cash flow above all else.
ROI looks different with cash versus financing
A property bought entirely in cash typically shows a lower percentage ROI than the same property purchased with a mortgage, because leverage amplifies your return on the smaller amount of cash actually invested — assuming the property cash flows positively after the mortgage payment. This is why cash-on-cash ROI, not total-return-on-purchase-price, is the more useful comparison for financed deals.
Don't forget appreciation and tax benefits
Cash-on-cash ROI captures ongoing cash flow, but it doesn't include property appreciation, mortgage principal paydown (which builds equity even if it doesn't show up as cash in hand), or tax benefits like depreciation — all of which contribute to total return. A property with modest cash flow but strong appreciation potential in a growing market may still be a very good long-term investment even if its cash-on-cash number alone looks unremarkable.
Compare ROI against your actual alternatives
The most useful benchmark isn't an abstract industry number — it's what else you could do with that same capital. If a safer, more liquid investment could realistically return 6-7%, a rental property needs to clear that bar by enough to justify the extra work, illiquidity, and risk that comes with owning real estate directly.
Frequently Asked Questions
What's the difference between ROI and cap rate?
Cap rate measures a property's return based on its purchase price or value regardless of financing, while cash-on-cash ROI measures return specifically on the cash you actually invested — they answer different questions and are both useful, especially together, for a financed property.
Is a 5% ROI bad for a rental property?
Not necessarily bad, but it's on the lower end of what many investors target for cash flow alone — it may still be reasonable if the property offers strong appreciation potential, is in a very stable/low-risk market, or if you're weighing other benefits like tax advantages and long-term equity building.
Should I include my own labor (self-managing) as a cost when calculating ROI?
It's worth considering, especially if comparing to a scenario where you'd hire a property manager — some investors calculate ROI both with and without an estimated management cost to understand the property's return under either scenario.
Does ROI account for vacancy and maintenance?
It should — an accurate ROI calculation needs realistic assumptions for vacancy periods and ongoing maintenance/repair costs, not just the rent you'd collect in a perfect, always-occupied scenario.