What a 7% Cash on Cash Return Looks Like

A 7% cash on cash return means the property pays you $7 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 7% return on a $500,000 rental

With 25% down and 3% closing costs, the cash invested is $140,000. A 7% return on that is $9,800 a year, or $817 a month, after every expense and the mortgage.

Rent needed: $5,240 a month (1.05% of price)
Collected after 5% vacancy: $59,736 a year
Operating expenses: $19,252 (32% of collected rent)
Net operating income: $40,484 (a 8.1% cap rate)
Debt service on the $375,000 loan: $30,698
Cash flow: $9,786 on $140,000 invested

The all-cash return on the same property at this rent would be 7.9%. 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 7% 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 7%	Rent needed	Rent / price
$100k	$28,000	$1,960	$1,050	1.05%
$150k	$42,000	$2,940	$1,570	1.05%
$200k	$56,000	$3,920	$2,095	1.05%
$250k	$70,000	$4,900	$2,620	1.05%
$300k	$84,000	$5,880	$3,145	1.05%
$350k	$98,000	$6,860	$3,670	1.05%
$400k	$112,000	$7,840	$4,195	1.05%
$450k	$126,000	$8,820	$4,715	1.05%
$500k	$140,000	$9,800	$5,240	1.05%
$600k	$168,000	$11,760	$6,290	1.05%
$700k	$196,000	$13,720	$7,340	1.05%
$800k	$224,000	$15,680	$8,385	1.05%

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 $500,000:

Down payment	Cash invested	Debt service	Rent for 7%
20%	$115,000	$32,744	$5,275
25%	$140,000	$30,698	$5,240
30%	$165,000	$28,651	$5,210
40%	$215,000	$24,558	$5,145
All cash	$515,000	$0	$4,765

Check your own deal against 7%

The calculator is loaded with the example above and a 7% target. Replace the numbers with yours.

Build both from the purchase, loan, rent and expenses

Cash on cash return

6.99%

Fair

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

$9,786 cash flow / $140,000 invested

Annual numbers

Gross scheduled income: $62,880
Vacancy: -$3,144
Operating expenses32% of collected rent: -$19,252
Net operating income: $40,484
Debt service$2,558.16 a month: -$30,698
Annual cash flow: $9,786
Monthly cash flow: $815

Cash invested

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

Other metrics

Cap rateNOI / price: 8.10%
All-cash returnFinancing hurts your return: 7.86%
DSCR (NOI basis): 1.32
Payback on cash: 14.3 yrs

To hit 7.0%

Cash flow neededper year: $9,800
Rent neededper month, vs $5,240 now: $5,242
Max price at this rentvs $500,000 now: $499,822

7% cash on cash return questions

Is a 7% cash on cash return good?

It is acceptable, not strong. A 7% 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 7% cash on cash return?

On a $500,000 property with 25% down at 7.25% and the standard expense assumptions, about $5,240 a month. That produces $9,800 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 7% return on $150,000 invested?

$10,500 a year, or about $875 a month. Multiply the cash you have in the deal by 0.07 to get the annual cash flow a 7% return requires.