What is a 10% cash-on-cash return?

A 10% cash-on-cash return means the property pays you $10 a year in cash flow for every $100 of cash you put into it. On $75,000 invested, that is $7,500 a year, or $625 a month, after every expense and the mortgage payment.

It is a yield on your own money, not on the property's price. The same property can produce a 10% return with one financing structure and 5% with another, because the loan changes both the cash flow and the cash invested.

A 10% return sits in the middle of the range most rental investors target and is considered good. It takes about ten years of cash flow to recover the cash invested. Appreciation, loan paydown and tax benefits are extra. On a $250,000 property with 25% down at 7.25%, reaching 10% takes about $2,900 in monthly rent.