When investing in real estate, one of the first questions every investor asks is: “What’s a good return?”
The answer depends on your investment goals, the market you’re in, and how you manage your property — but understanding how to measure and benchmark returns is key to building a profitable rental portfolio.

Understanding Return on Investment (ROI)

At its simplest, Return on Investment (ROI) measures how much profit you earn compared to your total investment.

Formula:

ROI = (Net Annual Income ÷ Total Investment Cost) × 100

Example:
If your rental property generates $12,000 a year in net income and your total investment (including purchase, closing costs, and rehab) was $200,000, your ROI would be 6%.

This simple calculation helps you quickly evaluate whether a property meets your investment expectations.

What’s Considered a “Good” ROI?

While every investor’s definition of “good” varies, most professionals consider:

    • 8%–12% ROI: Solid and sustainable for long-term buy-and-hold rentals

    • Over 12% ROI: Excellent performance, often found in emerging or high-yield markets

    • Below 6% ROI: Acceptable in prime locations where appreciation potential offsets lower cash flow

The key is balancing cash flow, risk, and market growth.
A property with a modest 7% cash-on-cash return in a fast-appreciating area may outperform a 12% property in a stagnant market over time.

Beyond ROI: Key Metrics Every Investor Should Track

Smart investors don’t rely on a single number. Other key performance indicators include:

    • Cash-on-Cash Return: Measures the return based on the actual cash invested — ideal for leveraged properties.

    • Cap Rate: Compares property income to its value, helping investors compare opportunities across markets.

    • Appreciation & Equity Growth: Reflects long-term wealth creation beyond monthly cash flow.

Tracking all three gives you a more accurate view of how your investment is truly performing.

Factors That Impact Your Returns

Your ROI can vary significantly depending on how your property is managed and positioned. Key factors include:

    • Location & Tenant Demand: Areas with strong job growth, good schools, and low vacancies typically offer better returns.

    • Property Management Efficiency: Professional management minimizes vacancy, controls costs, and improves tenant retention — all crucial for protecting ROI.

    • Financing Structure: The right mortgage terms can leverage your capital efficiently while minimizing risk.

    • Tax Benefits & Depreciation: Strategic deductions can significantly improve your after-tax return.

Cash Flow vs. Appreciation: The Investor’s Strategy Choice

Investors often align with one of two main strategies:

    • Cash Flow Investors: Seek steady monthly income and financial independence.

    • Appreciation Investors: Focus on long-term property value growth, even if short-term cash flow is modest.

The most successful portfolios balance both — generating stable income and benefiting from future appreciation.

Let’s discuss your goals and create a tailored strategy to boost your returns.
📞 Contact us today to learn more.