What a 2% Cash on Cash Return Looks Like

A 2% cash on cash return means the property pays you $2 a year for every $100 of cash you put into it. That is a weak cash yield. The property is barely paying you for the cash and the risk, and the investment case rests on appreciation, principal paydown and tax benefits rather than income.

A 2% return on a $250,000 rental

With 25% down and 3% closing costs, the cash invested is $70,000. A 2% return on that is $1,400 a year, or $117 a month, after every expense and the mortgage.

Rent needed: $2,245 a month (0.90% of price)
Collected after 5% vacancy: $25,593 a year
Operating expenses: $8,857 (35% of collected rent)
Net operating income: $16,736 (a 6.7% cap rate)
Debt service on the $187,500 loan: $15,349
Cash flow: $1,387 on $70,000 invested

The all-cash return on the same property at this rent would be 6.5%. Financing at 7.25% lowers the return because the loan costs more than the property yields, so the same rent produces a higher return with less leverage.

Rent needed for 2% 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 2%	Rent needed	Rent / price
$100k	$28,000	$560	$900	0.90%
$150k	$42,000	$840	$1,350	0.90%
$200k	$56,000	$1,120	$1,795	0.90%
$250k	$70,000	$1,400	$2,245	0.90%
$300k	$84,000	$1,680	$2,695	0.90%
$350k	$98,000	$1,960	$3,145	0.90%
$400k	$112,000	$2,240	$3,595	0.90%
$450k	$126,000	$2,520	$4,045	0.90%
$500k	$140,000	$2,800	$4,495	0.90%
$600k	$168,000	$3,360	$5,390	0.90%
$700k	$196,000	$3,920	$6,290	0.90%
$800k	$224,000	$4,480	$7,190	0.90%

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 work against each other, and less leverage needs less rent. On $250,000:

Down payment	Cash invested	Debt service	Rent for 2%
20%	$57,500	$16,372	$2,330
25%	$70,000	$15,349	$2,245
30%	$82,500	$14,326	$2,165
40%	$107,500	$12,279	$2,000
All cash	$257,500	$0	$1,005

Check your own deal against 2%

The calculator is loaded with the example above and a 2% target. Replace the numbers with yours.

Cash on cash return

1.98%

Weak

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

$1,387 cash flow / $70,000 invested

Annual numbers

Gross scheduled income: $26,940
Vacancy: -$1,347
Operating expenses35% of collected rent: -$8,857
Net operating income: $16,736
Debt service$1,279.08 a month: -$15,349
Annual cash flow: $1,387
Monthly cash flow: $116

Cash invested

Down payment: $62,500
Closing costs: $7,500
Upfront repairs: $0
Total cash invested: $70,000

Other metrics

Cap rateNOI / price: 6.69%
All-cash returnFinancing hurts your return: 6.50%
DSCR (NOI basis): 1.09
Payback on cash: 50.5 yrs

To hit 2.0%

Cash flow neededper year: $1,400
Rent neededper month, vs $2,245 now: $2,246
Max price at this rentvs $250,000 now: $249,810

2% cash on cash return questions

Is a 2% cash on cash return good?

Not on its own. A 2% cash yield is below what a savings account or Treasury pays. The deal only makes sense if appreciation, loan paydown or tax benefits carry the return.

How much rent do I need for a 2% cash on cash return?

On a $250,000 property with 25% down at 7.25% and the standard expense assumptions, about $2,245 a month. That produces $1,400 of annual cash flow on $70,000 invested. The rent needed scales with price and drops when you put more down.

What cash flow is a 2% return on $75,000 invested?

$1,500 a year, or about $125 a month. Multiply the cash you have in the deal by 0.02 to get the annual cash flow a 2% return requires.