What Is a Good Cash-on-Cash Return?

A good cash-on-cash return on a small rental is generally 8% or higher, though 5 to 8 percent is typical for 2-4 unit properties in most Midwest metros. House hackers often accept a lower cash-on-cash return in year one because living in the property cuts their own housing cost, which the metric does not capture.

The ranges investors actually target, how the number compares to stocks and bonds, and why house hackers should read the benchmarks differently.

Once you learn how to calculate cash-on-cash return, the next question arrives immediately: what number counts as good? You run a property through the math, it spits out 6 percent, and you have no idea whether to be excited or walk away. This post gives you the benchmarks investors actually use, where those benchmarks come from, and the reasons a “good” number in one situation is a mediocre number in another.

If you haven’t seen the formula yet, read Cash-on-Cash Return, Explained With a Real Example first. The short version: cash-on-cash return is your annual pre-tax cash flow divided by the total cash you put into the deal. And if you’re brand new to the whole idea of offsetting your mortgage with rent, start with What Is House Hacking?

The honest answer: there is no single magic number

I’d love to tell you “8 percent or walk,” but nobody serious talks that way. Investopedia’s own write-up on the metric points out that there’s no fixed rule for what makes a good cash-on-cash return, because it depends on the market, the property type, and what other opportunities your cash has. What I can give you is the range of opinion among people who buy rentals for a living, and it clusters fairly tightly.

Many investors treat 8 to 12 percent as a solid deal in a normal market. Below that, opinions split by market type. In expensive coastal or high-growth markets, experienced buyers routinely accept 4 to 6 percent because they expect appreciation and rent growth to do most of the work over time. In cheaper Midwest and Southern markets where appreciation is slower, buyers demand more current cash flow, often 10 percent or better, because the monthly check is most of the return.

So when someone online says “anything under 10 percent is a bad deal,” they’re describing their market and their strategy, and possibly neither of those matches yours.

Compare it to what your cash could earn elsewhere

The benchmark that keeps you sane is opportunity cost. Your down payment could be sitting in something else, so a rental’s return has to justify the work and the risk.

The floor is the risk-free rate. The 10-year U.S. Treasury yield, which you can check anytime on the Treasury Department’s site, is what your money earns with essentially zero effort and zero risk. If a rental’s projected cash-on-cash return is below the Treasury yield, you’re taking on tenants, toilets, and vacancy risk to earn less than a bond pays. The deal needs another justification, like serious appreciation or a big rent-raise opportunity, or it needs to be passed on.

The middle comparison is the stock market. The S&P 500 has averaged roughly 10 percent a year over the long run before inflation, per Investopedia’s summary of the historical data, though with big swings year to year. A rental at 6 percent cash-on-cash might still beat that once you add the parts the metric ignores, and that’s the next point.

Cash-on-cash return understates what a rental earns

This matters when you’re comparing benchmarks. Cash-on-cash return counts only the cash flow. A rental is also paying down your loan every month with your tenant’s money, possibly appreciating, and generating tax deductions like depreciation, which I covered in Depreciation on Rental Property, Explained.

A property with a 5 percent cash-on-cash return might have a total annual return in the low teens once loan paydown and modest appreciation are counted. That’s why experienced investors in appreciating markets accept single-digit cash-on-cash numbers without flinching. They’re getting paid in three other currencies at the same time.

The reverse is also worth saying: a high cash-on-cash return in a declining area, where the building loses value as fast as it pays you, can be a worse investment than the boring 6 percent duplex in a stable neighborhood.

Why house hackers should read the benchmarks differently

Here’s where my own numbers come in, because they show how strange this metric gets when you live in the property.

My duplex cost $470,000. With an FHA loan at 3.5 percent down, I put in about $16,450. My full payment with taxes and insurance runs about $2,880 a month. My upstairs tenant pays about $1,200 a month, and the finished basement earns Airbnb income on top of that. On paper, if you ran a pure cash-on-cash calculation treating me as an absentee investor, the property “loses” money, because I occupy a unit that produces no rent.

But I’m not an absentee investor. I live there. The rent I collect took my effective housing cost down to a few hundred dollars a month in a market where my unit would rent for far more than that. The value I’m receiving is a massive reduction in my largest monthly expense, and cash-on-cash return has no line for that. For an owner-occupant, the better yardstick is effective housing cost, which I wrote about in The One Number Every House Hacker Should Track.

Where the standard benchmarks do apply to you is the day you move out. Run the numbers twice on any house hack you’re considering: once as a resident, using effective housing cost, and once as a future landlord with both units rented, using cash-on-cash return. The second calculation tells you whether the property stands on its own after you leave. A house hack that only works while you accept a bad deal on the investment side is really just an expensive house with roommates.

Sanity checks on any number you calculate

A few habits will keep your benchmarks meaningful.

Treat anything above 15 percent as a prompt to re-check your assumptions rather than a reason to celebrate. Deals that good exist, but far more often the spreadsheet is missing vacancy, capital expenditures, property management, or realistic maintenance. If the number survives conservative inputs, then celebrate.

Use today’s interest rate, since the rate environment moves the goalposts. I locked 3.125 percent in a different era, and every percentage point of mortgage rate eats directly into cash flow. A property that produced 10 percent cash-on-cash at my rate might produce 4 percent at today’s. That says nothing about the property and everything about financing costs, which is also why refinancing later can transform a mediocre number.

Budget real expenses. Set aside money for vacancy, repairs, and big-ticket replacements like roofs and furnaces even in years you don’t spend it. A return calculated on rent minus mortgage alone is fiction.

Run your own numbers instead of arguing about thresholds

Benchmarks are a starting point. The deal in front of you is specific: its price, its rents, its taxes, its condition, and your loan. Put a real listing into the free house hacking calculator and it will show you the cash flow and return based on your actual inputs. Do that with five listings in your market and you’ll know what “good” looks like where you live, which beats any rule of thumb from a stranger on the internet.

The point

There’s no universal good cash-on-cash return. Roughly 8 to 12 percent is a common target, lower single digits are acceptable in strong appreciation markets, and anything below the 10-year Treasury yield needs a special reason to exist. The metric also undercounts a rental’s full return, since loan paydown, appreciation, and tax benefits ride along invisibly. And if you’re house hacking, judge the deal first by what it does to your monthly housing cost, then check that it works as a pure rental for the day you move out.