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ContinueWe take a look at the different factors that go into determining how much profit you should make on a rental property.
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Last updated: June 2026. Published: September 30, 2025.
A good rental property profit is typically a return on investment (ROI) of 10–15%, a cash-on-cash return of 8–12%, and a cap rate of around 5–10% depending on the market. Many investors also use the 1% rule, where monthly rent should be at least 1% of the purchase price. Actual profit is the cash left after all operating expenses and the mortgage are paid. These figures are widely used rules of thumb, not guarantees — your real return depends on the property, your financing, and your local market.
Rental properties can be a great way to make passive income, but it’s important to know how much profit you should be expecting from your investment. Knowing how much of a return you can expect from a rental property will help you make informed decisions about your investment.
In this article, we explore the different factors that go into determining how much profit you should make on a rental property. We’ll discuss how to calculate rental income, expenses, and net profit. We’ll also provide guidance on how to achieve a profitable return on your rental property investment.
Investors use a handful of standard metrics to judge whether a rental property is profitable. The table below summarizes the typical "good" benchmark for each and what it measures. Treat these as starting points for screening deals rather than firm targets — markets like Memphis or Cleveland often produce higher cash-on-cash returns than appreciation markets like Austin or Denver.
| Metric | What it measures | Typical "good" benchmark |
|---|---|---|
| Cash flow | The cash left over each month after all operating expenses and the mortgage are paid. | Positive cash flow of around $100+ per unit per month [verify] |
| Cash-on-cash return | The annual pre-tax cash flow as a percentage of the total cash you invested. | 8–12% |
| Cap rate | The property’s net operating income as a percentage of its purchase price or value, ignoring financing. | ~5–10% |
| Return on investment (ROI) | The total return on the money you put in, which can include cash flow, appreciation, and loan paydown. | 10–15% |
| The 1% rule | A quick screen rather than a profit metric: monthly rent measured against purchase price. | Monthly rent ≥ 1% of purchase price |
Rental property profit refers to the tangible cash remaining after each month's expenses are accounted.
It's crucial to differentiate rental property profit from taxable net income. This is because landlords can claim additional non-cash deductions which allow them to reduce their taxable income. One example of this is depreciation which allows investors to deduct the value of the property (not including the land) against their taxable income over a period of 27.5 years.
The strategic use of real estate tax deductions paired with property management and accounting software like Landlord Studio, enables real estate investors to minimize risks, maximize tax deductions, and ultimately increase ROI.
Calculating how much profit you should make on a rental property is one of the first things you need to do to determine if the property is going to be a good investment in the long term. This involves taking into account the expected rental income, any potential expenses, and the associated tax implications.
The property’s cash flow, however, will ultimately depend on a number of factors, including your initial investment, the type of property and its location. For instance, a single-family home in a desirable neighborhood will likely generate higher rental income than a single-family home in a less desirable area.
A few other factors to keep in mind when evaluating an investment opportunity:
Related: Rental Property Analysis Spreadsheet [Free Template]
Rental property operating expenses are those necessary costs that come with owning a rental property. These expenses include things like mortgage payments, repairs and maintenance, insurance, taxes, payroll and marketing costs.
Mortgage payments are necessary to pay off the loan used to purchase the property. Taxes and insurance are necessary to ensure the property is legally compliant and protected from any potential liabilities. Repairs and maintenance are essential to keep the property in good condition and up to code. Payroll costs are necessary to cover the wages of any employed staff, and marketing costs are necessary for advertising the rental property and finding new tenants.
In addition, rental property owners may also incur additional operating expenses such as utilities, cleaning and landscaping costs, HOA fees, and other miscellaneous expenses.
Utilities are costs associated with providing electricity, water, and other services to the rental property. Cleaning and landscaping costs may be necessary to keep the property looking nice and well-maintained. HOA fees are applicable if the rental property is located in a community with a Homeowners’ Association, and may include dues and other charges. Miscellaneous expenses may include legal fees, accounting fees, and other costs associated with owning and operating a rental property.
As you may have guessed, while rental profits may be deemed passive income by the IRS, if you want to run a profitable business there is a lot of work that needs to be done when it comes to managing your investment property and it's finances. Building positive rental cash flow is what ultimately turns a property into a profitable business.
Accurately tracking all of your rental property expenses throughout the year will allow you to report them on your tax return to reduce your tax liabilities and increase profit margins. The easiest way to track and report tax deductions is to use free purpose-built software like Landlord Studio.
Related: A complete breakdown of your schedule e expense categories
One of the first things landlords need to figure out is how much to charge for rent. Having a cash flow positive business is essential if you want to expand operations, and this means having little to no vacancy.
To do this, you have to set a price that is attractive to tenants while still bringing in the most money.
A few tips for working out how much rent to charge include:
There are several commonly used metrics used to calculate the return on your real estate investment and help you keep your property profitable over time.
Many real estate investors determine rental property profitability from the cash flow it generates.
Cash flow is the amount of positive (or negative) cash that is left over at the end of the year after all expenses (pre-tax) have been paid.
There are numerous factors that influence cash flow and investors should get a thorough understanding of all of the operating expenses associated with owning and running the rental property before purchase.
A few influencing factors include:
Investors and experts alike regard return on investment (ROI) as the most important aspect of evaluating the profitability of a real estate investment. It is generally recommended to aim for an ROI of 10-15%. However, the ROI that is considered “good” or “bad” is dependent on an individual’s financial standing and the particular property they choose to invest in.
For example, you spend pay $20,000 in closing fees and maintenance/repair costs and when the property is ready to hit the market, you charge your tenants $2,500 per month. If you divide your income by your expenses, your yearly ROI would be just over 7%
The widely used real estate investment metric of cash-on-cash return (CoC) measures the yearly return on an investment based on the cash invested and net operating income.
This return rate may differ greatly depending on the financing method employed, e.g. cash purchase or loan. Generally, it is advised to strive for a CoC yielding between 8% and 12%.
The capitalization rate (also known as cap rate) in real estate is the ratio of net income to the purchase price of the property. To illustrate, a property worth $200,000 that is rented out at $1,500 monthly would give an annual net operating income of $12,000, which is equivalent to a cap rate of 6%. Whether this rate is beneficial or not depends on a variety of factors.
For instance, a 6% rate may not be worth it if the neighborhood is not desirable or has a high risk or potential safety concerns. On the other hand, if the area is in high demand and the tenants are trustworthy, 6% can be a great return on investment.
You can run these numbers in seconds with our free cap rate calculator and NOI calculator to test a deal before you commit.
The 1% rule is a helpful tool for investors to evaluate the viability of a potential investment property. The rule states that the monthly rent should be at least 1% of the total purchase price.
For instance, if a property is bought for $300,000, it should generate a minimum of $3,000 in monthly rent. If market prices are lower than this or seem unreasonable, the investment may not be worth it. Additionally, factors such as size and location should be taken into consideration.
To see how these metrics connect, consider a simplified example. Imagine you buy a single-family rental for $200,000 with a $50,000 down payment (25% down), plus $5,000 in closing costs — so your total cash invested is $55,000.
In this illustration the property clears an 8% cap rate and a ~9% cash-on-cash return — both within the typical "good" ranges. The figures here are illustrative; plug your own numbers into our free rental income and returns calculator and rental yield calculator to model a specific deal.
Whether you invest in commercial, residential, short term rentals or other assets, understanding the financial implications of owning a rental property is crucial for running a sustainable, profitable and professional rental business. This is why leveraging tools like Landlord Studio to track your rental property finances plays such an important role when it comes to informed decision-making, accurate tax filings, and maximizing end of year deductions.
Landlord Studio is a property management and accounting software designed specifically for real estate investors. Easily track your income and expenses with powerful automation features like bank feeds and smart scan receipts.
Plus, streamline every aspect of your property management. Collect rent online, manage property maintenance, screen tenants and reduce vacancies and more. When it comes to tax time you can instantly generate any of over 15 accountant-approved reports, including your P&L and a specially designed Schedule E report.
Ditch your spreadsheets and upgrade your rental accounting and property management with the #1 rated free property management software for a more profitable rental portfolio.
As a rule of thumb, many investors aim for a return on investment (ROI) of 10–15% on a rental property, though some target a broader 8–12% range. What counts as "good" depends on your market, financing, and risk tolerance — appreciation-heavy markets often deliver lower cash ROI but higher long-term gains.
A cash-on-cash return of 8–12% is widely considered good. Below 8%, your capital might earn comparable returns elsewhere with less effort; projections above 15% often rely on optimistic vacancy or expense assumptions, so double-check the math.
A cap rate of roughly 5–10% is typical, with 4–6% common in stable urban markets and 8–10%+ more common in higher-risk areas. Cap rate ignores financing, so use it to compare properties, then layer in cash-on-cash return and ROI.
The 1% rule states that a rental property’s monthly rent should be at least 1% of its purchase price. A $250,000 property would need around $2,500 in monthly rent to pass. It’s a fast screening filter, not a guarantee of profit, and it has become harder to satisfy in many 2026 markets.
There is no universal figure, but many investors aim for positive monthly cash flow after all expenses and the mortgage are paid — a common rule of thumb is roughly $100 or more per unit per month [verify]. The right number for you depends on your purchase price, financing, and goals.
No. Rental property profit is the cash left after expenses, while taxable income is reduced by non-cash deductions such as depreciation. This is why your reported profit on your books can differ from the income you report on Schedule E.
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