What a 12% Cash on Cash Return Looks Like

A 12% cash on cash return means the property pays you $12 a year for every $100 of cash you put into it. That is an excellent cash yield. Returns at this level usually come from low-cost markets, heavy value-add, small multifamily or short-term rentals, and they deserve a second look at the expense assumptions that produced them.

A 12% return on a $500,000 rental

With 25% down and 3% closing costs, the cash invested is $140,000. A 12% return on that is $16,800 a year, or $1,400 a month, after every expense and the mortgage.

Rent needed: $5,990 a month (1.20% of price)
Collected after 5% vacancy: $68,286 a year
Operating expenses: $20,791 (30% of collected rent)
Net operating income: $47,495 (a 9.5% cap rate)
Debt service on the $375,000 loan: $30,698
Cash flow: $16,797 on $140,000 invested

The all-cash return on the same property at this rent would be 9.2%. Financing at 7.25% lifts the return because the loan costs less than the property yields.

Rent needed for 12% at other purchase prices

Same assumptions, different prices. The last column is rent as a percent of price, the quick screen investors use.

Price	Cash invested	Cash flow for 12%	Rent needed	Rent / price
$100k	$28,000	$3,360	$1,200	1.20%
$150k	$42,000	$5,040	$1,795	1.20%
$200k	$56,000	$6,720	$2,395	1.20%
$250k	$70,000	$8,400	$2,995	1.20%
$300k	$84,000	$10,080	$3,595	1.20%
$350k	$98,000	$11,760	$4,195	1.20%
$400k	$112,000	$13,440	$4,790	1.20%
$450k	$126,000	$15,120	$5,390	1.20%
$500k	$140,000	$16,800	$5,990	1.20%
$600k	$168,000	$20,160	$7,190	1.20%
$700k	$196,000	$23,520	$8,385	1.20%
$800k	$224,000	$26,880	$9,585	1.20%

How the down payment changes the rent needed

More cash in means a smaller loan and lower debt service, but also a bigger denominator. At 7.25% the two effects partly offset, and leverage still helps. On $500,000:

Down payment	Cash invested	Debt service	Rent for 12%
20%	$115,000	$32,744	$5,890
25%	$140,000	$30,698	$5,990
30%	$165,000	$28,651	$6,090
40%	$215,000	$24,558	$6,295
All cash	$515,000	$0	$7,520

Check your own deal against 12%

The calculator is loaded with the example above and a 12% target. Replace the numbers with yours.

Build both from the purchase, loan, rent and expenses

Cash on cash return

12.00%

Good

Good. Beats most passive alternatives after accounting for the work.

$16,797 cash flow / $140,000 invested

Annual numbers

Gross scheduled income: $71,880
Vacancy: -$3,594
Operating expenses30% of collected rent: -$20,791
Net operating income: $47,495
Debt service$2,558.16 a month: -$30,698
Annual cash flow: $16,797
Monthly cash flow: $1,400

Cash invested

Down payment: $125,000
Closing costs: $15,000
Upfront repairs: $0
Total cash invested: $140,000

Other metrics

Cap rateNOI / price: 9.50%
All-cash returnFinancing helps your return: 9.22%
DSCR (NOI basis): 1.55
Payback on cash: 8.3 yrs

To hit 12.0%

Cash flow neededper year: $16,800
Rent neededper month, vs $5,990 now: $5,990
Max price at this rentvs $500,000 now: $499,964

12% cash on cash return questions

Is a 12% cash on cash return good?

Yes. A 12% cash on cash return is well above the 8 to 12% most investors target on financed rentals. Check the expense assumptions, because returns this high often come from underestimating vacancy, repairs or management.

How much rent do I need for a 12% cash on cash return?

On a $500,000 property with 25% down at 7.25% and the standard expense assumptions, about $5,990 a month. That produces $16,800 of annual cash flow on $140,000 invested. The rent needed scales with price and drops when you put more down.

What cash flow is a 12% return on $150,000 invested?

$18,000 a year, or about $1,500 a month. Multiply the cash you have in the deal by 0.12 to get the annual cash flow a 12% return requires.