What Is a Good ROI on a Rental Property?
“ROI” means five different things in real estate. Pin down which one you're being quoted before you compare anything.
1.5% or 15.1%
The same deal in the same year — depending which of the five ROIs you quote.
The five things people call ROI
| Name | Formula | Includes | Typical 2026 range |
|---|---|---|---|
| Cap rate | NOI ÷ price | Operations only. No financing, no appreciation. | 4% – 8% |
| Cash-on-cash return | Annual cash flow ÷ cash invested | Operations and financing. Nothing else. | 0% – 8% |
| Total return (year one) | (Cash flow + principal paydown + appreciation) ÷ cash invested | Everything, including a forecast. | 8% – 20% |
| IRR | Discount rate where all cash flows net to zero | Everything, plus timing and the eventual sale. | 6% – 14% |
| Return on equity (ROE) | Annual return ÷ current equity | Whether your accumulated equity is still working. | Falls over time as equity grows |
None of these is wrong. They answer different questions, and the confusion is almost always that someone quotes the largest one without saying which it is.
The same deal, five ways
The $240,000 example used throughout these guides: rent $2,100 a month, NOI $15,004, 25% down at 6.75% on a 30-year loan, $7,200 in closing costs, so $67,200 of cash invested.
Year-one returns on one property
- Cap rate — $15,004 ÷ $240,000
- 6.25%
- Cash flow — $15,004 NOI − $14,009 debt service
- $995
- Cash-on-cash — $995 ÷ $67,200
- 1.5%
- Principal paydown in year one
- $1,947
- Appreciation at 3% — $240,000 × 3%
- $7,200
- Total year-one gain — $995 + $1,947 + $7,200
- $10,142
Total return = $10,142 ÷ $67,200 = 15.1%
1.5% or 15.1%. Same property, same month, both arithmetically correct. Which one is honest depends entirely on what you are going to do with the answer.
Read the total-return figure carefully
And check the deal underneath the number
Worth noticing about this example: its DSCR is 1.07. The property covers its mortgage by 7%. One extended vacancy or one furnace and the year is negative. A headline of “15% total return” is technically true and would be a misleading way to describe a deal with that little margin — which is precisely why a single ROI figure makes a poor decision tool.
What is actually a good target
| If you are optimising for… | Watch this | A reasonable target today |
|---|---|---|
| Income you can spend now | Cash-on-cash return | 4% – 8%, with DSCR at or above 1.25 |
| Building net worth over a decade | IRR over your actual hold period | 10% – 14%, tested at 0% appreciation |
| Comparing properties on equal terms | Cap rate | At or above local sold comps, and above your mortgage constant |
| Deciding whether to sell or refinance | Return on equity | If ROE has fallen below what you could earn redeploying the equity, act |
The return on equity trap
This is the one experienced investors care about and beginners never hear of. Cash-on-cash is frozen at your original investment — but your equity keeps growing through paydown and appreciation. Five years into the example above you might hold $110,000 of equity while still collecting $1,500 a year of cash flow. Your cash-on-cash “still” reads 1.5% because the denominator never updated; your actual return on the equity you now control is well under 2%.
That is the calculation that prompts a cash-out refinance or a sale — not because the property became bad, but because too much of your capital is sitting in it doing very little. Recompute annually against current value, not purchase price.
Frequently asked questions
What is a good ROI on a rental property?
It depends entirely on which ROI. For cash-on-cash return, 4 to 8% is realistic in 2026. For IRR over a five to ten year hold, 10 to 14% is a common target. For a year-one total return including appreciation, figures of 12 to 20% are routine — and are largely made of forecast rather than cash.
Is 10% ROI good for a rental property?
As a cash-on-cash return, 10% is strong and worth verifying — check that vacancy, management and capital reserves are all present in the expenses. As a total return including appreciation and principal paydown, 10% is around average and tells you little without seeing the split.
Should ROI include appreciation?
Only if you label it. Appreciation is a forecast, not income, and it dominates any return figure that includes it. The disciplined approach is to run the analysis twice — once with your appreciation assumption and once at zero — and make sure the deal is acceptable in the second version.
What is the difference between ROI and IRR?
ROI is usually a single-period ratio that ignores when money arrives. IRR accounts for timing across the whole hold, including the sale, so a dollar in year one counts for more than a dollar in year ten. IRR is the more complete measure and also the easier one to inflate through assumptions.