Best Cash on Cash Return Investments: Property Types Compared

The best cash on cash return investments are the ones where rent per dollar of price is high and the expense load is low, which in practice points to small multifamily buildings and net leased commercial space more often than single family houses. Property type matters less than those two numbers.

A good duplex beats a bad fourplex. A sensibly priced house in a strong rental market beats an expensive one anywhere. So the honest answer is not a ranking of property types, it is a short list of what moves the return and a look at how each type tends to sit on that list.

What decides the return, not the label

Cash on cash return is annual pre-tax cash flow divided by the cash you put into the deal. Three things move it:

1. Rent collected per dollar of purchase price.
2. The share of that rent eaten by operating costs.
3. The size and annual cost of the loan.

Property type pushes on all three. None of them is fixed by type, which is why two buildings on the same street can return 4% and 9%.

Property types compared

Property type	Rent per dollar of price	Expense load	Cash due up front
Single family rental	Low to middling	Lowest	Down payment, closing costs, repairs
Condo	Price is lower, rent is similar	Adds the association fee	Often the least rehab
2 to 4 units	Higher	Higher per dollar of rent	Same 30 year loan terms as a house
Short-term rental	Highest gross revenue	Highest by a wide margin	Adds furniture, linens, licensing
Commercial or net lease	Middling	Lowest when the tenant pays taxes and insurance	Larger equity check, more diligence

The single family rental baseline

The default example here is a $500,000 rental that rents for $5,200 a month, with $10,000 of rehab, $6,000 of property tax and $2,400 of insurance. Net operating income runs $40,210, a cap rate near 8.0%. At 25% down over 30 years at 7.25%, cash flow is $9,460 on $150,000 invested, so cash on cash is about 6.3%.

Houses are the simple case. Thirty year loans, the shortest expense list, one tenant to manage and the deepest resale market if you want out.

The risk is concentration. A landlord with one house has a tenant base of one, so an empty month is total vacancy for that month. The Census Bureau publishes rental vacancy rates by region every quarter in its Housing Vacancies and Homeownership survey, which beats guessing a flat 5%.

Condos look cheaper and often pay less

Keep the same $500,000 price and $5,200 rent, then add a $400 a month association fee. That is $4,800 a year straight off net operating income, which drops to $35,410. Cash flow falls to $4,660 and the return to 3.1%.

Fees vary enormously by building and region, from under $200 to well over $800 a month, so the only number worth using is the one on the actual listing. Special assessments sit on top of it.

Two to four units usually win on rent per dollar

Small multifamily is the quiet favorite for cash flow, and the reason is arithmetic. One roof, one parcel of land, one set of closing costs, more rent checks.

Say the same $500,000 buys a duplex renting for $6,000 a month instead of $5,200. Gross rent rises $9,600 a year. Assume half of that goes to the extra expenses, turnover and vacancy of a second unit, and cash flow rises about $4,800. The return moves from 6.3% to roughly 9.5% on the same $150,000.

Buildings of five units and up are financed as commercial deals instead, with shorter amortization and a lender who sizes the loan from the income. That change alone can pull the return down, as the walkthrough of how a commercial lender sizes the loan shows.

Short-term rentals start with a bigger denominator

A short let needs furniture, kitchenware, linens, a lockbox and a listing. Call it $25,000 on the standard house. Cash invested goes from $150,000 to $175,000, and the same $9,460 of cash flow now returns 5.4% instead of 6.3%.

To match the long-term rental, the short let has to produce $11,025 of cash flow, about $1,565 more, before it is even level.

Gross revenue usually clears long-term rent by a wide margin. The costs clear it too. Management runs a much larger share of revenue, cleaning and supplies come out of every booking, you pay the utilities and internet, and licensing rules can shut the use case down entirely in some cities. Nightly rates also swing by season, so a strong summer can hide a thin year.

Commercial and net leased space

Commercial property changes both sides of the fraction. A lease that runs five or ten years with the tenant paying taxes, insurance and maintenance, often called a triple net lease, removes the two biggest line items from your expense list.

On the same $500,000 space, the $6,000 of tax and $2,400 of insurance come back as reimbursements. Net operating income rises to $48,610 and the return at 25% down lands near 11.9%.

The trade is that occupancy is 0% or 100%. One tenant leaving takes the whole income, and re-leasing brings tenant improvement money and commissions that never show up in net operating income.

The highest return is not the best investment

Cash on cash measures one year of cash against your money in. It says nothing about appreciation, loan paydown, tax treatment or how likely the rent is to keep arriving.

A 12% return on a short let in a city debating a permit ban is not safer than 6.3% on a house with a two year tenant. Read the gaps in the measure before you rank deals on it alone, and see what counts as a good cash on cash return for sensible targets. If a type you like comes in low, the levers that raise the return are worth a pass before you walk away.

Compare them in the calculator

Put each property into the cash on cash return calculator and read the returns side by side. Enter price, rent, rehab, taxes and insurance for the full version, or use the simple tab when you already know the totals: $12,000 of annual cash flow on $150,000 invested is 8%. Change one input at a time and the type that fits your money becomes obvious.