What a 20% Cash on Cash Return Looks Like

A 20% cash on cash return means the property pays you $20 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 20% return on a $500,000 rental

With 25% down and 3% closing costs, the cash invested is $140,000. A 20% return on that is $28,000 a year, or $2,333 a month, after every expense and the mortgage.

Rent needed: $7,190 a month (1.44% of price)
Collected after 5% vacancy: $81,966 a year
Operating expenses: $23,254 (28% of collected rent)
Net operating income: $58,712 (a 11.7% cap rate)
Debt service on the $375,000 loan: $30,698
Cash flow: $28,014 on $140,000 invested

The all-cash return on the same property at this rent would be 11.4%. Financing at 7.25% lifts the return because the loan costs less than the property yields.

Rent needed for 20% 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 20%	Rent needed	Rent / price
$100k	$28,000	$5,600	$1,440	1.44%
$150k	$42,000	$8,400	$2,155	1.44%
$200k	$56,000	$11,200	$2,875	1.44%
$250k	$70,000	$14,000	$3,595	1.44%
$300k	$84,000	$16,800	$4,315	1.44%
$350k	$98,000	$19,600	$5,030	1.44%
$400k	$112,000	$22,400	$5,750	1.44%
$450k	$126,000	$25,200	$6,470	1.44%
$500k	$140,000	$28,000	$7,190	1.44%
$600k	$168,000	$33,600	$8,625	1.44%
$700k	$196,000	$39,200	$10,065	1.44%
$800k	$224,000	$44,800	$11,500	1.44%

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 20%
20%	$115,000	$32,744	$6,875
25%	$140,000	$30,698	$7,190
30%	$165,000	$28,651	$7,505
40%	$215,000	$24,558	$8,135
All cash	$515,000	$0	$11,930

Check your own deal against 20%

The calculator is loaded with the example above and a 20% target. Replace the numbers with yours.

Build both from the purchase, loan, rent and expenses

Cash on cash return

20.01%

Excellent

Excellent. Double-digit cash yield on the money in the deal.

$28,014 cash flow / $140,000 invested

Annual numbers

Gross scheduled income: $86,280
Vacancy: -$4,314
Operating expenses28% of collected rent: -$23,254
Net operating income: $58,712
Debt service$2,558.16 a month: -$30,698
Annual cash flow: $28,014
Monthly cash flow: $2,335

Cash invested

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

Other metrics

Cap rateNOI / price: 11.74%
All-cash returnFinancing helps your return: 11.40%
DSCR (NOI basis): 1.91
Payback on cash: 5.0 yrs

To hit 20.0%

Cash flow neededper year: $28,000
Rent neededper month, vs $7,190 now: $7,188
Max price at this rentvs $500,000 now: $500,121

20% cash on cash return questions

Is a 20% cash on cash return good?

Yes. A 20% 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 20% cash on cash return?

On a $500,000 property with 25% down at 7.25% and the standard expense assumptions, about $7,190 a month. That produces $28,000 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 20% return on $150,000 invested?

$30,000 a year, or about $2,500 a month. Multiply the cash you have in the deal by 0.2 to get the annual cash flow a 20% return requires.