What Is a Good ROI on a Rental Property?
Last reviewed August 2026
The short answer: a good rental-property ROI is commonly an 8–12% first-year cash-on-cash return plus a double-digit annualized IRR once appreciation and loan paydown are counted. But "good" is relative — a 4–5% return can be excellent in a stable, appreciating market, while a riskier market may need 10%+ to be worth it. Your goals, market, and risk tolerance set the real target.
The reason there's no single number is that "ROI" isn't one metric — it's a family of them, each answering a different question. What counts as good depends on which one you mean and what you're optimizing for. Here are the benchmarks, and what moves them.
Good-ROI benchmarks by metric
| Metric | Common "good" range | What it measures |
|---|---|---|
| Cash-on-cash return | 8–12% | Your first-year cash return on the money invested. The most-watched number for cash-flow investors. |
| Cap rate | 5–10% | The property's unleveraged yield. Lower in expensive/appreciating markets, higher where there's more risk. |
| Annualized IRR | low-to-mid teens | The complete, time-weighted return over your whole hold, including appreciation and the sale. |
| Total ROI (hold period) | varies widely | All profit ÷ cash invested over the years you hold — depends heavily on appreciation and time. |
See where a specific property lands with the rental ROI calculator.
ROI isn't one number
Cash-on-cash return answers "what did my money earn this year?" — first-year cash flow divided by the cash you invested. It's the fastest way to compare deals, but it stops at year one and ignores appreciation and loan paydown.
Total ROI and IRR answer "what did the whole investment earn?" over your entire hold, including the sale. IRR is the most complete single number because it accounts for the timing of every dollar. A property can have a modest cash-on-cash return but a strong IRR if appreciation and loan paydown do the heavy lifting.
How financing changes the answer
The same property can post very different returns depending on how you pay for it — something many "good ROI" articles skip. Pay all cash and your return is roughly the cap rate, often 5–6%. Finance it, and leverage amplifies the result: because you control the whole property with only your down payment, appreciation and loan paydown are earned on the full value but measured against a fraction of the cash.
The catch is direction. When your mortgage rate is below the cap rate, leverage lifts your cash-on-cash return above it — positive leverage. When the rate is higher than the cap rate, it drags your return down, which is why today's rates make cash flow harder to find. That's also why a "good" ROI target should be set againstyour financing, not a generic benchmark. See the effect with the mortgage calculator.
Why "good" depends on your market and strategy
In expensive, high-growth metros, cap rates and cash-on-cash returns are low because buyers accept less current income in exchange for appreciation — a 4–5% return can be excellent there. In affordable, slower-growth markets, investors demand more current yield, so 8–10%+ is the expectation. The same percentage is a great deal in one place and a poor one in another.
The most useful benchmark isn't national — it's what comparable properties in the same neighborhood return. Match your target to your strategy (cash flow vs. appreciation) and to what similar rentals nearby actually deliver.
Where a "good" ROI is really an overstated one
Impressive ROI figures usually come from a few predictable places. Before you trust one, check that it isn't resting on:
- Missing reserves — no vacancy, maintenance, or CapEx makes cash flow (and cash-on-cash) look far better than reality.
- Optimistic appreciation — a point or two of assumed growth can inflate a hold-period ROI dramatically. Test it at zero.
- Ignored selling costs — commissions and closing costs at sale can consume 7–8% of the price.
- Counting only the down payment — closing costs and upfront repairs are real invested capital; leaving them out inflates every ratio.
Frequently asked questions
What is a good ROI on a rental property?
Many investors consider a first-year cash-on-cash return of 8–12% good, alongside a double-digit annualized IRR once appreciation and loan paydown are included. But there is no universal number — a 4–5% return can be excellent in a stable, appreciating market, while 10%+ may be needed to justify a higher-risk one. The right target depends on your goals, market, and risk tolerance.
Is a higher ROI always better?
Not necessarily. A very high headline ROI often signals higher risk — an older property, a weaker market, or optimistic assumptions that may not hold. A moderate, reliable return in a strong location can beat a high but fragile one. Look at the risk behind the number, not just the number.
What's the difference between ROI, cap rate, and cash-on-cash return?
Cap rate is the property's unleveraged yield (NOI ÷ price), ignoring your loan. Cash-on-cash return is your first-year cash return on the actual money you invested. Total ROI and IRR capture the full return over your whole hold, including appreciation and loan paydown. They answer different questions, so a 'good' target differs for each.
What ROI should I expect if I pay all cash?
Lower — often around 5–6% — because there's no leverage amplifying the return. Paying cash removes the mortgage, so your return equals roughly the cap rate. Financing can push cash-on-cash returns higher when the interest rate is below the cap rate, at the cost of more risk.
How do I actually improve a rental's ROI?
Raise income (higher rent, lower vacancy, added income like parking or laundry), cut expenses (appeal an inflated tax assessment, shop insurance, self-manage), or pay less for the property — price is often the biggest lever. Because ROI is return ÷ cash invested, both a higher return and a lower purchase price move it.
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