Cash on Cash Return on a $300,000 Rental Property

A $300,000 rental bought with 25% down at 7.25% puts $84,000 of cash into the deal. At $2,700 rent it returns 2.0% on that cash. It needs about $3,235 in rent to reach 8% and $3,595 to reach 12%.

The numbers on a $300,000 rental

Assumptions: 3% closing costs, 5% vacancy, taxes at 1.2% of price ($3,600 a year), insurance at 0.5% ($1,500), and 5% maintenance, 5% capital reserves and 8% management on collected rent. Taxes especially vary by state, so replace them with the real bill.

Down payment: $75,000, closing costs $9,000, total cash invested $84,000
Loan: $225,000 at 7.25%, $1,535 a month, $18,419 a year
Rent: $2,700 a month, $30,780 collected after vacancy
Operating expenses: $10,640 (35% of collected rent)
Net operating income: $20,140, a 6.71% cap rate
Cash flow: $1,721 a year, $143 a month
Cash on cash return: 2.05%. All-cash return: 6.52%

Financing at 7.25% is hurting here: the all-cash return is higher than the financed one, so the loan costs more than the property yields. Every extra dollar borrowed lowers the return until rates fall or rent rises.

Return at different rents on a $300,000 property

Rent as a percent of price is the fastest screen. The old "1% rule" produces the row at 1.0%.

Monthly rent	Rent / price	Cash flow	Cash on cash	Cap rate
$1,800	0.6%	-$6,692	-8.0%	3.9%
$2,100	0.7%	-$3,888	-4.6%	4.8%
$2,400	0.8%	-$1,084	-1.3%	5.8%
$2,700	0.9%	$1,721	2.0%	6.7%
$3,000	1.0%	$4,525	5.4%	7.6%
$3,300	1.1%	$7,330	8.7%	8.6%
$3,600	1.2%	$10,134	12.1%	9.5%
$3,900	1.3%	$12,938	15.4%	10.5%

How the interest rate changes the return

At $2,700 rent and 25% down. Leverage flips from positive to negative where the loan's annual cost (payments as a share of the balance) passes the cap rate.

Rate	Debt service	Cash flow	Cash on cash	Leverage
5.00%	$14,494	$5,645	6.7%	Positive
5.50%	$15,330	$4,809	5.7%	Negative
6.00%	$16,188	$3,952	4.7%	Negative
6.50%	$17,066	$3,074	3.7%	Negative
7.00%	$17,963	$2,176	2.6%	Negative
7.25%	$18,419	$1,721	2.0%	Negative
7.50%	$18,879	$1,261	1.5%	Negative
8.00%	$19,812	$328	0.4%	Negative
8.50%	$20,761	-$621	-0.7%	Negative

How the down payment changes the return

At $2,700 rent and 7.25%. If leverage is negative, more down raises the return but ties up more cash for it.

Down	Cash invested	Debt service	Cash flow	Cash on cash
20%	$69,000	$19,647	$493	0.7%
25%	$84,000	$18,419	$1,721	2.0%
30%	$99,000	$17,191	$2,949	3.0%
40%	$129,000	$14,735	$5,405	4.2%
50%	$159,000	$12,279	$7,860	4.9%
All cash	$309,000	$0	$20,140	6.5%

Run the $300,000 deal yourself

Preloaded with the numbers above. Change the rent, rate, taxes or expenses to match your property.

Cash on cash return

2.05%

Weak

Weak. Cash yield is below a savings account. The return depends on appreciation and paydown.

$1,721 cash flow / $84,000 invested

Annual numbers

Gross scheduled income: $32,400
Vacancy: -$1,620
Operating expenses35% of collected rent: -$10,640
Net operating income: $20,140
Debt service$1,534.90 a month: -$18,419
Annual cash flow: $1,721
Monthly cash flow: $143

Cash invested

Down payment: $75,000
Closing costs: $9,000
Upfront repairs: $0
Total cash invested: $84,000

Other metrics

Cap rateNOI / price: 6.71%
All-cash returnFinancing hurts your return: 6.52%
DSCR (NOI basis): 1.09
Payback on cash: 48.8 yrs

To hit 8.0%

Cash flow neededper year: $6,720
Rent neededper month, vs $2,700 now: $3,235
Max price at this rentvs $300,000 now: $240,341

$300,000 rental questions

How much cash do I need to buy a $300,000 rental?

With 25% down and 3% closing costs, about $84,000: $75,000 down plus $9,000 in closing. Add any repairs before the first tenant. Most lenders also want three to six months of payments in reserves, which is not counted as cash invested.

What rent does a $300,000 property need for an 8% cash on cash return?

About $3,235 a month under the standard assumptions, which is 1.08% of price. For 12% it is $3,595. Lower taxes, self-management or a lower interest rate all bring the number down.

Is a $300,000 rental a good investment?

The price alone does not decide it. At $2,700 rent (0.9% of price) the cash on cash return is 2.0% with 25% down. The same property at $3,235 rent returns 8%. The rent-to-price ratio, the tax rate and your financing decide the return, not the price.