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Rental property ROI
A rental earns in four ways, cash flow, appreciation, loan paydown, and tax benefits. “ROI” usually means just one of them. Here is how to measure each, and which one you can actually spend.
A $320,000 rental renting for $2,100 a month, financed at 6.8% with 25% down, lands here on the spendable side of ROI:
Negative cash flow here, and a DSCR under the 1.2 lenders want. Appreciation and loan paydown have to carry the return. Adjust the inputs below to test your own deal.
The four components of rental return
| Component | What it is | When you realize it |
|---|
| Cash flow | Rent minus all expenses & mortgage | Monthly / annually (cash-on-cash) |
| Appreciation | Property value rising over time | On sale or refinance |
| Loan paydown | Tenant pays down your mortgage | On sale or refinance |
| Tax benefits | Depreciation, deductions, 1031 exchange | Annual tax filing / on sale |
Cash-on-cash captures only the first row. Total ROI captures all four, which is why investors accept cash-flow-negative deals in appreciation markets. The honest 2026 trade is that many deals marketed as good ROI lean on appreciation to cover negative cash flow.
The 2026 reality. Across the 18 metros in the
Investor Yield Index, modeled at 25% down, a 40% expense load, and a 6.8% mortgage, every market currently shows a negative cash-on-cash return on a standard purchase. Cleveland sits closest to break-even. That is why the cash-flow side of ROI has to be measured deal by deal, not assumed.
Start with cash-on-cash
Run the levered math first, since it is the return you can actually spend. The example below uses a 6.8% rate, 25% down, and a 40% expense load. Change any input to fit your deal.
Index figures use seed data, not live quotes. Run your own numbers above before acting.
Common questions
How do you calculate rental property ROI?
It depends on the timeframe. Cash-on-cash return measures annual cash flow against the cash you invested. Total ROI adds appreciation, loan paydown, and tax benefits over the hold. Most investors track both, since they answer different questions.
What is a good rental property ROI?
Many investors aim for an 8 to 12% cash-on-cash return, but at 2026 rates that is hard to find on a financed deal. A lot of stabilized rentals land at 5 to 8%, and plenty run negative on cash flow. Total ROI including appreciation can still be much higher over a multi-year hold.
Does rental ROI include appreciation?
Cash-on-cash does not. Total ROI does. Be clear which you mean, because the difference is large in appreciation markets.
DSCR