Is a 7% cash-on-cash return good?

A 7% cash-on-cash return is fair, not strong. It sits just under the 8 to 12% range most rental investors target and is common in mid-priced markets at current interest rates. It beats a savings account by a couple of points in exchange for the work and risk of a rental.

Whether 7% is acceptable depends on what else the property offers. In a market with steady rent growth and appreciation, investors take 7% cash and expect the total return to land well into the teens once loan paydown and price gains are counted.

It also depends on how honest the inputs were. A 7% return computed with 5% vacancy, 8% management and 5% capital reserves is a real 7%. One computed with none of those is closer to 3%. Before judging the number, check that the expenses behind it would survive a lender's underwriting.