Enter your property details and rental assumptions to see the true return on investment.
Investment Analysis Results
What Is a Good Cap Rate for Rental Property?
Cap rate measures how much a property earns relative to its price, ignoring financing. For most US rental markets in 2026, a cap rate between 5% and 8% is considered solid, while 8%+ is attractive in stable markets. Coastal cities often trade lower cap rates (3%–5%) for stronger appreciation potential.
Remember that cap rate alone does not tell the full story. Cash-on-cash return matters more if you are using a mortgage, because it reflects your actual out-of-pocket return.
How Cash-on-Cash Return Works
Cash-on-cash return divides your annual pre-tax cash flow by the cash you invested upfront. It answers: "How much income am I getting back each year on the money I actually put in?"
Typical targets range from 7% to 12% for buy-and-hold rental investors. If your cash-on-cash return is below 4%, you may want to negotiate harder, increase the down payment, or look at a different market.
How to Improve Rental ROI
- Reduce vacancy: Screen tenants thoroughly and price competitively to minimize turnover.
- Refinance: A lower interest rate can dramatically improve monthly cash flow.
- Charge market rent: Review comparable rents annually and adjust when leases renew.
- Control expenses: Bundle insurance, shop for property management, and budget for maintenance.
- Force appreciation: Strategic upgrades (kitchen, bathrooms, flooring) can raise rents and property value.
Frequently Asked Questions
The 1% rule suggests a rental property should rent for at least 1% of its purchase price per month to be cash-flow positive. For example, a $400,000 property should rent for at least $4,000/month. It is a quick screening tool, not a replacement for full ROI analysis.
No, this calculator focuses on income-based returns. Property appreciation is a separate wealth-building component that varies by market and is difficult to predict. Include it in your long-term projections separately.
Compare both scenarios with this calculator. Cash purchases often show higher cash-on-cash returns and less risk, while leverage can magnify returns but adds monthly obligation and interest cost.