How Much Cash Flow Should Your Rentals Make?
Summary
This article from BiggerPockets discusses how to calculate cash flow and determine a good cash flow target for your rental properties in the current market. The author suggests aiming for a 7% cash on cash return after stabilization to ensure a profitable investment. Hosts should use cash on cash return as their main metric and focus on the power of compounding for long-term financial success.
Key Insights
- •A key metric for evaluating cashflow is the cash on cash return (CoC), calculated by dividing the total amount of cash flow by the total amount of money invested in the property.
- •The proper definition of cash flow is taking total income (rent) and subtracting all expenses, including the mortgage, taxes, insurance, repairs, maintenance, vacancy, and turnover costs.
- •The article suggests that in 2026, a 7% cash on cash return by year two, after stabilization, is a good target for investors, considering returns on other investments such as the stock market and interest rates.
Action Items
- ✓Calculate your minimum cashflow target based on your investment strategy, financial goals, and other investment opportunities like the stock market.Effort: mediumImpact: high
- ✓Focus on measuring cashflow using cash on cash return, rather than the raw dollar amount of cashflow, to assess your investment efficiency.Effort: lowImpact: medium
Tools & Resources
- →BiggerPockets: The article recommends using the calculators provided by BiggerPockets to help with cashflow calculations.(biggerpockets.com/pro)
Common Mistakes
- ⚠Failing to account for all expenses, including repairs, maintenance, vacancy, and turnover costs when calculating cashflow, could lead to inaccurate profitability assessments.
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