What a 8% Cash on Cash Return Looks Like

A 8% cash on cash return means the property pays you $8 a year for every $100 of cash you put into it. That is a good return for a financed long-term rental. It clears most investors' hurdle rate, covers real operating costs, and leaves appreciation and loan paydown as upside rather than the whole thesis.

A 8% return on a $500,000 rental

With 25% down and 3% closing costs, the cash invested is $140,000. A 8% return on that is $11,200 a year, or $933 a month, after every expense and the mortgage.

Rent needed: $5,390 a month (1.08% of price)
Collected after 5% vacancy: $61,446 a year
Operating expenses: $19,560 (32% of collected rent)
Net operating income: $41,886 (a 8.4% cap rate)
Debt service on the $375,000 loan: $30,698
Cash flow: $11,188 on $140,000 invested

The all-cash return on the same property at this rent would be 8.1%. 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 8% 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 8%	Rent needed	Rent / price
$100k	$28,000	$2,240	$1,080	1.08%
$150k	$42,000	$3,360	$1,615	1.08%
$200k	$56,000	$4,480	$2,155	1.08%
$250k	$70,000	$5,600	$2,695	1.08%
$300k	$84,000	$6,720	$3,235	1.08%
$350k	$98,000	$7,840	$3,775	1.08%
$400k	$112,000	$8,960	$4,315	1.08%
$450k	$126,000	$10,080	$4,850	1.08%
$500k	$140,000	$11,200	$5,390	1.08%
$600k	$168,000	$13,440	$6,470	1.08%
$700k	$196,000	$15,680	$7,550	1.08%
$800k	$224,000	$17,920	$8,625	1.08%

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 8%
20%	$115,000	$32,744	$5,395
25%	$140,000	$30,698	$5,390
30%	$165,000	$28,651	$5,385
40%	$215,000	$24,558	$5,375
All cash	$515,000	$0	$5,315

Check your own deal against 8%

The calculator is loaded with the example above and a 8% target. Replace the numbers with yours.

Build both from the purchase, loan, rent and expenses

Cash on cash return

7.99%

Fair

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

$11,188 cash flow / $140,000 invested

Annual numbers

Gross scheduled income: $64,680
Vacancy: -$3,234
Operating expenses32% of collected rent: -$19,560
Net operating income: $41,886
Debt service$2,558.16 a month: -$30,698
Annual cash flow: $11,188
Monthly cash flow: $932

Cash invested

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

Other metrics

Cap rateNOI / price: 8.38%
All-cash returnFinancing hurts your return: 8.13%
DSCR (NOI basis): 1.36
Payback on cash: 12.5 yrs

To hit 8.0%

Cash flow neededper year: $11,200
Rent neededper month, vs $5,390 now: $5,391
Max price at this rentvs $500,000 now: $499,854

8% cash on cash return questions

Is a 8% cash on cash return good?

Yes. A 8% return sits inside the 8 to 12% range most rental investors target. It covers real operating costs and pays a meaningful yield on the cash in the deal.

How much rent do I need for a 8% cash on cash return?

On a $500,000 property with 25% down at 7.25% and the standard expense assumptions, about $5,390 a month. That produces $11,200 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 8% return on $150,000 invested?

$12,000 a year, or about $1,000 a month. Multiply the cash you have in the deal by 0.08 to get the annual cash flow a 8% return requires.