What is a good cap rate for a rental property?

Cap rate is net operating income divided by purchase price, and a 'good' figure depends heavily on the market. In many areas investors look for roughly 5–8%, but a lower cap rate can be acceptable in a high-appreciation, low-risk market and a higher one is expected in a riskier or slower-growth area. Cap rate ignores financing, so it measures the property, not your deal.

What is a good cash-on-cash return?

Cash-on-cash return is your annual pre-tax cash flow divided by the cash you put in. Many buy-and-hold investors target around 8% or more, but acceptable returns vary by market and strategy. Unlike cap rate, it accounts for your mortgage and down payment, so it reflects the return on your actual money.

What is DSCR and why do lenders care?

Debt service coverage ratio (DSCR) is net operating income divided by the loan's annual principal and interest. A DSCR of 1.0 means the property exactly covers its debt; lenders typically want 1.2 or higher so there's a cushion. Many investment-property loans are underwritten directly on DSCR.

How much should I budget for maintenance and CapEx?

A common starting point is to set aside roughly 1% of the property value per year for maintenance plus a separate reserve for capital expenditures (roof, HVAC, water heater) that hit infrequently but cost thousands. Many investors reserve another 5–10% of rent for CapEx. Older properties need more.

Is the 1% rule still useful?

The 1% rule — monthly rent should be at least 1% of the purchase price — is a quick screen, not a verdict. In many markets today few properties meet it, and meeting it doesn't guarantee positive cash flow once taxes, insurance, vacancy, and reserves are included. Use it to filter, then run the full numbers.

Is a rental property worth it?

"Rent is $2,000 and the mortgage is $1,400, so I clear $600 a month." That math has sunk more first-time landlords than any market crash. A rental is worth it only if it cash-flows after all the real costs — and four of the biggest are the ones the back-of-the-envelope version leaves out.

Last reviewed: June 2026

The quick answer

A rental property is "worth it" when it produces positive cash flow after every recurring cost and earns an acceptable return on the cash you tie up — while you also accept the risk and the work of being a landlord. The trap isn't the mortgage; it's the expenses that don't show up every month but absolutely come due: vacancy, management, maintenance, and capital expenditures.

The honest cash-flow formula

Monthly cash flow = rent − mortgage (P&I) − taxes − insurance − vacancy − management − maintenance − CapEx reserves − any HOA/utilities you cover. If the answer isn't comfortably positive, it's not a cash-flowing deal.

The four expenses that sink "good" deals

Vacancy. No tenant is in place 100% of the time. Budgeting 5–8% of rent for turnover and empty months keeps a couple of bad weeks from erasing your year.
Property management. Whether you pay a manager (typically 8–10% of rent) or do it yourself, that work has a cost. If you self-manage, you're buying yourself a part-time job — count it.
Maintenance. Repairs, turnovers, and the steady drip of small fixes. Roughly 1% of property value a year is a common starting estimate; older homes need more.
Capital expenditures (CapEx). The big-ticket items — roof, HVAC, water heater, appliances — that cost thousands and fail every 10–25 years. Reserve for them monthly so they're funded when they hit, not charged to a credit card.

The four numbers that actually tell you

Cash flow

The dollars left in your pocket each month after everything above. It's the first thing to get right — a property that loses $150 a month loses $1,800 a year of your money, appreciation or not.

Cap rate

Net operating income (rent minus operating expenses, before the mortgage) divided by price. It measures the property's yield independent of how you finance it — useful for comparing deals. Many investors look for roughly 5–8%, but it's deeply market-dependent.

Cash-on-cash return

Annual pre-tax cash flow divided by the cash you actually invested (down payment, closing costs, initial repairs). This is the return on your money, and unlike cap rate it accounts for your mortgage. Many buy-and-hold investors aim for around 8%+.

DSCR (debt service coverage ratio)

Net operating income divided by the loan's annual payments. 1.0 means the property just covers its debt; lenders typically want 1.2 or higher. Many investment-property loans are underwritten on this number, so it's worth knowing before you apply.

Rules of thumb — and their limits

The 1% rule (monthly rent ≥ 1% of price) and the 50% rule (operating expenses eat about half of rent) are fast screens, not verdicts. In today's market few properties clear the 1% rule, and clearing it doesn't guarantee positive cash flow once taxes, insurance, vacancy, and reserves are in. Use them to filter the listings worth a closer look — then run the full numbers on the survivors.

One more thing the monthly number misses: tax treatment. Rental income is taxable, but depreciation and deductible expenses often shelter much of it, and the after-tax cash flow can look meaningfully different from the pre-tax figure. It's worth modeling both.

Run the honest numbers on a deal

Our free Rental Property Cash Flow Calculator models what a property actually nets after vacancy, management, maintenance, and CapEx — with cap rate, cash-on-cash, DSCR, break-even stress tests, multi-year IRR, and after-tax cash flow. Regional defaults give you a realistic starting point, and nothing leaves your browser.

Run the numbers →

Frequently asked questions

What's a good cap rate?: Net operating income ÷ price. Many investors look for roughly 5–8%, but lower can be fine in a high-appreciation, low-risk market and higher is expected in riskier areas. Cap rate ignores your financing, so it rates the property, not your deal.
What's a good cash-on-cash return?: Annual pre-tax cash flow ÷ cash invested. Many buy-and-hold investors target around 8%+, but it varies by market and strategy. It reflects the return on your actual money because it includes your mortgage and down payment.
What is DSCR and why do lenders care?: Net operating income ÷ annual loan payments. 1.0 just covers the debt; lenders usually want 1.2+ for a cushion, and many investment loans are underwritten on it.
How much should I budget for maintenance and CapEx?: A common start is ~1% of value per year for maintenance plus a separate CapEx reserve (often 5–10% of rent) for big-ticket items like roof and HVAC. Older properties need more.
Is the 1% rule still useful?: As a quick screen, yes; as a verdict, no. Few properties meet it today, and meeting it doesn't guarantee positive cash flow after taxes, insurance, vacancy, and reserves.