What a 5% Cash on Cash Return Looks Like

A 5% cash on cash return means the property pays you $5 a year for every $100 of cash you put into it. That is a fair return. It is common in mid-priced markets and at today's interest rates, and many investors accept it when they expect rent growth or appreciation. On cash yield alone it is roughly what a bond pays with less work.

A 5% return on a $250,000 rental

With 25% down and 3% closing costs, the cash invested is $70,000. A 5% return on that is $3,500 a year, or $292 a month, after every expense and the mortgage.

Rent needed: $2,470 a month (0.99% of price)
Collected after 5% vacancy: $28,158 a year
Operating expenses: $9,318 (33% of collected rent)
Net operating income: $18,840 (a 7.5% cap rate)
Debt service on the $187,500 loan: $15,349
Cash flow: $3,491 on $70,000 invested

The all-cash return on the same property at this rent would be 7.3%. 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 5% 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 5%	Rent needed	Rent / price
$100k	$28,000	$1,400	$990	0.99%
$150k	$42,000	$2,100	$1,485	0.99%
$200k	$56,000	$2,800	$1,975	0.99%
$250k	$70,000	$3,500	$2,470	0.99%
$300k	$84,000	$4,200	$2,965	0.99%
$350k	$98,000	$4,900	$3,460	0.99%
$400k	$112,000	$5,600	$3,955	0.99%
$450k	$126,000	$6,300	$4,450	0.99%
$500k	$140,000	$7,000	$4,940	0.99%
$600k	$168,000	$8,400	$5,930	0.99%
$700k	$196,000	$9,800	$6,920	0.99%
$800k	$224,000	$11,200	$7,905	0.99%

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 5%
20%	$57,500	$16,372	$2,515
25%	$70,000	$15,349	$2,470
30%	$82,500	$14,326	$2,430
40%	$107,500	$12,279	$2,345
All cash	$257,500	$0	$1,830

Check your own deal against 5%

The calculator is loaded with the example above and a 5% target. Replace the numbers with yours.

Cash on cash return

4.99%

Fair

Fair. In line with what many investors accept in appreciating markets.

$3,491 cash flow / $70,000 invested

Annual numbers

Gross scheduled income: $29,640
Vacancy: -$1,482
Operating expenses33% of collected rent: -$9,318
Net operating income: $18,840
Debt service$1,279.08 a month: -$15,349
Annual cash flow: $3,491
Monthly cash flow: $291

Cash invested

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

Other metrics

Cap rateNOI / price: 7.54%
All-cash returnFinancing hurts your return: 7.32%
DSCR (NOI basis): 1.23
Payback on cash: 20.1 yrs

To hit 5.0%

Cash flow neededper year: $3,500
Rent neededper month, vs $2,470 now: $2,471
Max price at this rentvs $250,000 now: $249,875

5% cash on cash return questions

Is a 5% cash on cash return good?

It is acceptable, not strong. A 5% return is common in mid-priced markets at current rates. Investors who take it usually expect rent growth or appreciation to lift the total return.

How much rent do I need for a 5% cash on cash return?

On a $250,000 property with 25% down at 7.25% and the standard expense assumptions, about $2,470 a month. That produces $3,500 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 5% return on $75,000 invested?

$3,750 a year, or about $313 a month. Multiply the cash you have in the deal by 0.05 to get the annual cash flow a 5% return requires.