What is a good cash-on-cash return on rental property?
Most investors target a cash-on-cash return of 8% to 12% on a long-term rental, with 10% as a common benchmark. But the number is heavily shaped by your down payment, your market, and your strategy. A 5% CoC in an appreciation market and a 14% CoC on a short-term rental can both be good deals for different reasons.
Cash-on-cash return is the metric investors obsess over, and understandably so: it tells you what your actual cash is earning, in cash, this year. But chasing the highest CoC without understanding what drives it is how people end up in overleveraged deals in shaky markets. The number matters. The context behind it matters more.
The real benchmarks
| Cash-on-cash | What it means |
|---|---|
| 12%+ | Strong. Typically found in high cash-flow markets, short-term rentals, or deals with below-market purchase prices. |
| 8% to 12% | The sweet spot most long-term rental investors target. Solid without excessive risk. |
| 4% to 8% | Moderate. Common in appreciation markets where paydown and value growth carry the total return. |
| 0% to 4% | Low. You are betting on appreciation, tax benefits, or both. Ask whether a Treasury bond earns the same with less work. |
| Below 0% | Negative. The property costs you money each month. Only makes sense with strong appreciation conviction and deep reserves. |
CoC versus alternative investments
Cash-on-cash is a one-year, cash-only number, so comparing it to other investments is only fair if you compare apples to apples: the cash return on the cash deployed.
| Investment | Typical annual cash yield | Active work? |
|---|---|---|
| Rental property (leveraged) | 8% to 12% CoC | Yes (management, maintenance, tenant risk) |
| 10-year US Treasury | ~4.5% | None |
| S&P 500 dividends | ~1.3% | None (but total return averages ~10%/yr) |
| Public REITs | 3% to 5% dividend | None |
| High-yield savings | ~4% to 5% | None |
An 8% CoC is roughly double a Treasury yield, which is fair compensation for the work, illiquidity, and risk. A 4% CoC on a rental barely clears a savings account, which means the investment only makes sense if appreciation and paydown deliver the rest.
How leverage changes everything
The same property produces wildly different CoC numbers depending on how much you put down. This is not a flaw in the metric; it is the whole point. CoC measures the return on YOUR cash, and leverage amplifies it in both directions.
| Scenario | Down payment | Monthly cash flow | Cash-on-cash |
|---|---|---|---|
| All cash ($350k) | $350,000 | $1,450 | 5.0% |
| 25% down | $98,000 | $310 | 3.8% |
| 20% down | $80,500 | $180 | 2.7% |
Wait, the all-cash scenario has the highest CoC? Not always, but at today's interest rates, yes. When borrowing costs 7%+ and the property yields 5% to 6% unleveraged (the cap rate), leverage actually works against you on a pure CoC basis. The math reverses when rates drop or when the cap rate exceeds the mortgage constant by a healthy margin. That is negative leverage, and it is the reality of many financed deals in 2025 to 2026.
The investor who finances anyway is not wrong, because CoC is only one piece. Paydown and appreciation (which CoC ignores) are real return engines that leverage amplifies.
Market-specific expectations
What counts as a "good" CoC varies dramatically by market and strategy:
- Memphis, Indianapolis, Cleveland (long-term rentals): 8% to 12% CoC is achievable on clean deals at 25% down. These are cash-flow-first markets.
- Tampa, Phoenix, Charlotte (balanced markets): 5% to 8% CoC is realistic. Investors here accept moderate cash returns because appreciation and rent growth are strong.
- Austin, Denver, Nashville (appreciation markets): 3% to 6% CoC. Negative leverage is common. The play is total return, not monthly cash.
- Short-term rentals (any market): 12% to 20%+ is the target, reflecting the higher revenue but also higher management intensity, seasonality, and regulatory risk.
When a high CoC is suspicious
Just like a suspiciously high cap rate, a CoC that looks too good usually has a story behind it:
- Inflated rent assumptions. If the seller projects $2,200 but comparables rent at $1,800, the real CoC is 30% lower.
- Missing expense buckets. No vacancy, no CapEx, no management fee? Add them and watch the number shrink.
- High-risk market. A 15% CoC in a town losing population is pricing in the risk that rents and values are heading lower.
The bigger picture: CoC is not the whole return
Cash-on-cash deliberately excludes two return engines: loan principal paydown (your tenant building your equity) and appreciation. A deal with a 4% CoC and a total ROI of 14% once paydown and appreciation are counted can outperform a 10% CoC deal in a flat market. Use CoC to measure your cash efficiency, but check the full rental ROI before you make a final call.
Frequently asked questions
What is a good cash-on-cash return for a rental property?
Most investors target 8% to 12%, with 10% as a common benchmark. In expensive appreciation markets, 4% to 7% is realistic. On short-term rentals, investors often target 12% to 20%+. Compare against what the same cash would earn passively (Treasuries at roughly 4.5%) to judge whether the work is worth it.
Is 5% cash-on-cash return good?
In an appreciation market like Austin or Denver, 5% is normal and acceptable if paydown and value growth carry the total return. In a cash-flow market like Memphis, 5% is below average and suggests overpaying or underperforming rent. Context decides.
Does a bigger down payment increase cash-on-cash return?
It depends on rates. When mortgage rates exceed the cap rate (common in 2025 to 2026), more down can actually increase CoC because you reduce the drag of expensive debt. When rates are low, less down amplifies CoC through positive leverage. There is no universal rule.
How is cash-on-cash different from cap rate?
Cap rate measures the property's unleveraged yield (NOI ÷ price). Cash-on-cash measures your leveraged cash return (cash flow ÷ cash invested). Cap rate is the same for every buyer. CoC changes with your financing.
Does cash-on-cash return include appreciation?
No. Cash-on-cash is cash flow only. It excludes appreciation and loan paydown. Use the full rental ROI to capture all three return engines.
What cash-on-cash return do short-term rentals get?
Well-run short-term rentals in strong markets can hit 12% to 20%+ CoC, reflecting higher gross revenue per night. That number comes with higher management costs, seasonality risk, and regulatory exposure, so it is not free money.