What is a good rental property ROI?

A good ROI for rental property is typically 8–12% cash-on-cash return. Cap rates of 5–8% are considered good in stable markets. Higher returns (12%+) often come with higher risk or require more active management. Compare to alternative investments like stocks (7–10% historical returns).

What is the difference between cash flow and cap rate?

Cash flow is the actual monthly profit after all expenses (rent minus mortgage, taxes, insurance, maintenance). Cap rate (capitalization rate) is NOI (net operating income) divided by property value, expressed as a percentage. Cap rate excludes financing costs and measures the property's intrinsic return.

How do I calculate net rental yield?

Net rental yield = (Annual rent − Annual expenses) / Property value × 100%. Annual expenses include: property taxes, insurance, maintenance (1–2% of value), management fees (if applicable), and vacancy allowance (5–10%). A 5%+ net yield is generally considered good.

What expenses should I budget for rental property?

Budget for: property taxes (1–2% of value annually), insurance ($800–2,000/year), maintenance (1–2% of value), property management (8–12% of rent if hiring), vacancy allowance (5–10% of rent), and capital expenditures (roof, HVAC, appliances). Total expenses typically run 30–50% of gross rent.

Is rental property a good investment?

Rental property can be a good investment for long-term wealth building through appreciation and cash flow. It requires active management and carries risks (vacancy, maintenance, market downturns). Compare to REITs for passive exposure. Consider your time, risk tolerance, and local market conditions.

What is the 1% rule for rental property?

The 1% rule suggests monthly rent should be at least 1% of the purchase price. For a $200,000 property, aim for $2,000/month rent. This is a quick screening tool — not a guarantee of profitability. Markets vary, and lower rent may still work with low purchase prices or high appreciation potential.

Rental Property Calculator – ROI, Cash Flow & Yield

Property Details

Purchase Price ($)

Down Payment ($)

Mortgage Rate (%)

Monthly Rent ($)

Monthly Expenses ($)Tax, insurance, maintenance, mgmt

Vacancy Rate (%)

Monthly Cash Flow

—

Gross Yield

—

Net Yield

—

Cap Rate

—

Cash-on-Cash ROI

—

Monthly Breakdown

Effective Rent (after vacancy)

Mortgage Payment

Operating Expenses

Net Cash Flow

// The Four Metrics

NOI = Rent − Expenses | Cap = NOI / Value

Net Operating Income and Cap Rate are the foundation of every landlord's analysis

Gross Yield

Gross Rental Yield

Annual rent ÷ property value. A quick comparison metric — does not account for costs

Net Yield

Net Rental Yield

(Rent − Expenses) × 12 ÷ property value. More accurate than gross — includes all operating costs

Cap Rate

Capitalisation Rate

NOI ÷ property value. Compare properties independent of financing structure

CoC ROI

Cash-on-Cash Return

Annual cash flow ÷ cash invested. Measures actual return on your down payment

Cash Flow First

Four Metrics Every Landlord Must Know

Cap rate, gross yield, cash-on-cash return, and NOI. A property that looks attractive at first glance can destroy wealth once you factor in management fees, maintenance, void periods, and financing. Calculate all four before you commit.

// What makes a good investment

Reading Your Rental Numbers

Positive monthly cash flow is the holy grail — the property pays for itself and generates income. But in high-price markets (San Francisco, London), negative cash flow is common. Investors accept this when they expect strong capital appreciation to compensate over 10+ years.

The 1% rule (US) states monthly rent should be ≥ 1% of purchase price. A $300k property should rent for $3,000/month. This rule is rarely achievable in premium markets but remains a useful screening filter for cash-flow-first investors.

Stress-test first: Always model what happens if the interest rate rises 2–3% and vacancy doubles. If the property still survives financially in that scenario, it's a robust investment.

// Yield benchmarks by market

What Is a Good Rental Yield?

🇺🇸 United States — Net yield 5–8%

Midwest and South markets offer highest yields (7–10%). Coastal cities (NYC, LA, SF) typically yield 2–4% gross. Cap rates of 5–7% are broadly acceptable for residential.

🇬🇧 United Kingdom — Gross yield 5–7%

UK net yields after all costs: 3–5%. Northern England and Scotland often yield 6–8% gross; London typically 3–4%. High yield = higher management intensity or lower capital growth expectation.

🌏 AU / CA — Net yield 3–5%

Australia and Canada have seen prices surge relative to rents. Gross yields in major cities often 2–4%. Regional markets offer better yields. Negative gearing is common and tax implications vary significantly.

// Common Questions

Frequently Asked Questions

Gross yields of 5–8% are generally considered solid. Net yield (after all costs) is more important — aim for at least 4–5% net. City centres may yield 3–4% gross; some regional markets reach 8–10%. High yield often correlates with higher management intensity or lower capital growth.

Mortgage interest, agency fees (8–15% of rent), maintenance (1–2% of property value/year), insurance, ground rent/service charges, void periods (1–2 months/year), and potential legal costs. Most new landlords underestimate these by 30–50%.

Cash-on-cash ROI = (Annual net cash flow) / (Total cash invested) × 100. Total cash invested = deposit + closing costs + any refurbishment. For total return, also add capital appreciation. Both metrics matter for a complete picture.

The US 1% rule: monthly rent ≥ 1% of purchase price. On a $300,000 property, that's $3,000/month. This equates to a 12% gross yield — rarely achievable in premium markets. Use it as a screening filter, not an absolute rule.

With a $60k deposit on a $300k property, a 10% appreciation creates a 50% return on cash — before rental income. But a 20% price fall destroys your entire deposit. Always stress-test at mortgage rates 2–3% above current and double the vacancy rate.

Budget for 1–2 months of vacancy per year — roughly an 8–17% reduction in gross rental income. Maintain a cash reserve of 3–6 months of mortgage payments to cover periods between tenants and unexpected repairs.

Management fees (8–12% of rent) cost about $2,400/year on $2,000/month rent. Worth it if you live far from the property, have a full-time job, or own multiple properties. Self-management saves money but costs time — and mistakes can be expensive.

At 6–7% mortgage rates, cash flow has become negative in many markets previously profitable at 2–3% rates. Profitability now requires: larger deposits (25–35%), high-yield locations, or accepting short-term negative cash flow in exchange for long-term appreciation.

// Methodology & References

Formula & Calculation Method

Gross Rental Yield

Gross_Yield = (Annual_Rent / Property_Value) × 100%

Net Rental Yield

Net_Yield = ((Annual_Rent − Annual_Expenses) / Property_Value) × 100%

Annual_Expenses — Management + maintenance + insurance + property tax + vacancy allowance

Cap Rate (Capitalization Rate)

Cap_Rate = NOI / Property_Value × 100%

NOI — Net Operating Income (rent − operating expenses, excluding mortgage)

Source: Standard CRE valuation (Appraisal Institute)

Cash-on-Cash Return

CoC = Annual_Cash_Flow / Total_Cash_Invested × 100%

Authoritative Sources & Standards

IRS: IRS Publication 527 — Residential Rental Property. Depreciation: 27.5 years straight-line for residential, 39 years for commercial. Passive activity loss rules limit deductions for non-real-estate-professionals. → IRS

Expert Insights & Research

The 1% rule of thumb: monthly rent should equal at least 1% of purchase price. In 2024, only 19% of US metros meet this threshold (Zillow analysis), compared to 67% in 2010.

— Zillow Research / BiggerPockets 2024 Market Analysis (2024)

Real estate's long-term return (1928–2023) is approximately 4–5% real (inflation-adjusted), compared to 6–7% for S&P 500. Leverage amplifies returns but also losses (Robert Shiller, Yale).

— Shiller, R. — Online historical home price index (Yale) (2023)

// Explore More

Related Property & Finance Tools

MTG

Mortgage Calculator

Full payment breakdown and amortization schedule.

Calculate →

DTI

Home Affordability

How much house can you afford using the 28/36 rule?

Calculate →

INV

Investment Calculator

All-in-one ROI with appreciation, equity, and cash flow.

Calculate →

CI%

Compound Interest

Model portfolio growth with compounding over time.

Calculate →

SAV

Savings Calculator

Plan your down payment savings with a monthly target.

Calculate →

SAL

Salary Comparison

Compare take-home pay across countries and tax brackets.

Calculate →