You took on the risk and invested for a reason: a return.

But how much should you expect back?

Here’s what’s considered a good rate of return on a rental property:

The Short Answer (and Why it “Depends)

A “good” return on a rental property exceeds your cost of capital (your hurdle rate reflecting loan costs, the return you require on your cash, and a risk/effort premium). It should outperform local comps on the same metric, whether that’s cap rate, rental yield, or cash-on-cash.

Because returns vary by location, property type, and expected vacancy, aim to be above your local average after adjusting for those factors.

Okay, The Long Answer

Building on our short answer, here’s the long and (fair warning) more number-heavy answer:

Across U.S. counties, the average gross rental yield for three-bedroom properties is approximately 7.45% for 2025, with top-yield counties achieving yields of roughly 10% to 18%.

Institutional benchmarks add more insight. Core multifamily going-in cap rates (day-one net operating income (NOI) divided by purchase price) are around 4.73% in Q3 2025.

On the equity side, many investors view 6% to 10% cash-on-cash return as an attractive range for residential deals, adjusted for risk and effort.

How to Calculate Your Return (Step-By-Step)

Okay, so how exactly do you calculate your return? Grab your notepad, here’s how:

1. Start With Your Income

Begin with the monthly rent you do or will earn from the property, multiply by 12 to get gross rent. Subtract a vacancy allowance and any expected credit loss to get the effective gross income. Add other income such as pet fees, parking, or laundry.

Example: $2,500 per month × 12 = $30,000 gross rent. With a 5% vacancy allowance, the effective gross income is $28,500. Assume no other income for simplicity.

Learn more: What is a rental ledger?

2. Now, the Expenses

List annual operating expenses you will pay: property taxes, insurance, repairs and maintenance, utilities that are owner-paid, management fees, HOA dues, and a small reserve for capital items such as roof, HVAC, or appliances. You can itemize or apply a conservative expense ratio if you have a limited history.

Example: Using a 35% expense ratio on $28,500 gives $9,975 in operating expenses.

3. Get NOI, Then Capitalization Rate

NOI, or net operating income, equals effective gross income minus operating expenses. Cap rate equals NOI divided by purchase price or current market value.

Example: $28,500 − $9,975 = NOI $18,525. If the purchase price is $240,000, the cap rate ≈ 7.7%.

4. Layer in Financing to get Cash-on-Cash Return

Subtract annual debt service from NOI to get pre-tax cash flow. Divide that by your total cash invested to get the cash-on-cash return. Total cash invested usually includes the down payment, closing costs, and initial repairs.

Example: 20% down on $240,000 is $48,000. Loan is $192,000 at, let’s say, 6.5% for 30 years, which is about $1,213.57 per month, $14,562.85 per year. Pre-tax cash flow ≈ $18,525 − $14,562.85 = $3,962.

That means your cash-on-cash return ≈ $3,962 ÷ $48,000 = ~8.3%.

Confused? Here’s how to calculate your rental rate in more detail.

Your Rate of Return Against the Local Market

If we go back and look at the average gross rental yield across the US, 8.3% is above the average of 7.45%, so our example delivers an above-average rate of return.

But just remember, despite averages, your local comparables (properties similar to yours) matter most. If a neighbor’s rate of return is, say, 12% and yours is only 8.3%, you’ll need to ask yourself why that is.

Let’s look at this in more detail:

Compare to Local Yields and Cap Rates

Select three to five recent comparable properties that are similar in terms of property type, number of bedrooms and bathrooms, condition, and location. For each, estimate the vacancy rate and typical expenses, then calculate a quick net yield or capitalization rate.

Your deal looks “good” when it lands above that local band on the same measure without leaning on rosy assumptions. If the property is unusual, widen the radius a little and normalize for size and condition.

Keep It Micro-Local

Do not average an entire city. Anchor your comparables inside the same school catchment, on the same side of any major arterial, and with similar walkability and transit access. A unit one block deeper into a top-rated school zone, closer to a rail stop, or shielded from freeway noise can justify stronger rent and faster leasing than one located just a few streets away.

If you cannot find three to five true peers, widen the radius a little, then note each difference in a short line item, such as “outside school zone” or “faces arterial”, and temper your effective rent or expected vacancy accordingly.

Vacancy and Seasonality Check

Sanity-check your vacancy before you celebrate a “good” result. If your pro forma uses a tighter vacancy rate than the comparables, back it up with evidence such as recent days-on-market, the time of year you will list, or a clear presentation edge like better photos and in-unit laundry.

If you cannot justify the difference, lift your vacancy assumption to the comparable average and recompute yield, cap rate, and cash-on-cash.

Seasonality matters as well. Listings that come on the rental market during peak leasing months often turn over faster than winter listings in the same block. If a small increase knocks your metric back into the local middle of the pack, your return is not “good” yet.

Expenses Investors Underestimate (And Shouldn’t)

Unseen expenses hurt your returns. Keep an eye out for these commonly unaccounted-for costs:

Turnover Costs and Vacancy

Between tenants, getting the place ready usually means a deep clean, touching up or repainting walls, fixing small items, tidying or replacing worn carpet or vinyl plank flooring, and checking locks and door hardware. If you use an agent or manager, include any leasing or placement fees.

Empty days also cost money: estimate the cost per day by dividing the monthly rent by 30, then multiplying by the number of extra days the home sits empty (for example, at $2,400 per month, each empty day is about $80, so a 6-day delay costs roughly $480).

Keep the work list short enough to finish in a few days to about a week, and if it will take longer, add the extra empty day cost to your return calculation before you approve the work.

Property Taxes and Insurance Drift

Buying can trigger a property tax reassessment, and your insurance premium can change after a claim, as the roof ages, or if regional risk shifts (storms, fires).

What to do:

1. Check tax history. Look up the parcel on the assessor’s site. See how taxes changed after prior sales on this property and nearby. Estimate what your taxes would be at your purchase price, not the seller’s older assessed value.
2. Get specific insurance quotes. Provide roof age, construction type, square footage, and coverage needs (replacement cost, liability, wind/hail, flood if required). Ask for an estimate of the next renewal increase, too.
   Budget a “drift” buffer. Add a small annual line item for increases so a mid-year escrow adjustment does not wreck cash flow.

Simple example:

• Current taxes: $3,000. Model $3,600 in Year 1 after reassessment, then +3–5% per year.
  Current premium: $1,800. Model $2,000–$2,200 at renewal if the roof is older or you are in a higher-risk area.

Revisit both lines every renewal and update your pro forma so your return stays realistic.

Not sure what your property tax rate is? Ranked low to high, here’s the property state rate for each US state.

Depreciation, Taxes, and Your After-Tax Return

Residential structures are typically depreciated over 27.5 years; land is not depreciable. Depreciation can lift your after-tax cash yield today because it reduces taxable income reported on Schedule E.

At sale, some or all of that benefit may be recaptured, and you may also face capital gains on appreciation. Investors sometimes use a 1031 exchange to defer recognition when swapping into another property, so be aware of this.

What Moves Returns Most (Levers You Control)

Three levers move almost every rental’s return. First, price and presentation raise what the market will pay. Second, vacancy control shortens the time between leases, so more of the year is earning rent. Third, expense discipline keeps operating costs from eating cash flow.

Think in days and dollars. One extra vacant week can erase a meaningful slice of annual rent, so a small, realistic price adjustment that fills the unit faster often beats holding out.

Let’s explore this more:

Pricing and Marketing Reduce Vacancy

Price to the market you have, not the one you wish you had. Use clean, bright photos and a tight feature list that leads with must-haves like in-unit laundry or parking. Publish at a realistic asking rent based on fresh comparables, then review inquiries and showing volume within the first 72 hours.

If interest is lackluster, adjust early instead of drifting vacant. Offer flexible viewing windows or self-tours so prospects can see the place quickly. Keep screening criteria consistent and start renewal conversations 60 to 90 days before expiry with fair increases and a small tune-up offer, which is cheaper than a turn and a gap. Track four simple ratios, each listing cycle to keep yourself honest: days on market, inquiry-to-showing, showing-to-application, and application-to-lease.

Renovations that Lift Rent Without Overcapitalizing

Refresh before you reinvent. Focus on updates that renters pay for and that survive turnovers: neutral paint, resilient flooring in high-wear areas, a kitchen and bath refresh, bright task lighting, smart access, and storage adds.

Run a quick payback check for each item and aim for a vacancy-neutral scope that fits a standard turn window. Pre-order materials, batch trades, and schedule the final clean and photos before you start, so the unit goes live the moment work wraps. If the math looks thin or the work would extend vacancy, scale the scope or defer it to the next natural turnover.

Expense Discipline

Protect NOI with boring, repeatable habits. Set a preventative maintenance calendar that includes filter changes, recaulking wet areas, gutter cleans, and an annual HVAC tune-up to prevent bigger failures. Standardize paints, flooring, and hardware across units so touch-ups and repairs are faster and cheaper.

For larger jobs, collect at least two comparable vendor bids and document the scope so you are not paying for extras you did not approve. Trim utility spend with whole-home LED lamps and simple comfort upgrades, and consider a smart thermostat where the system supports it. Review insurance annually, shop coverage if premiums jump, and keep a small capital reserve so inevitable replacements do not crush cash flow mid-year.

Your Rate of Return is Looking Great, Now What?

The easiest way to protect a “good” return is to shorten vacancy, present the unit like a true professional, and keep operating costs predictable…

And that’s precisely what Ziprent’s flat-fee services are built for.

Our tenant placement includes next-day listing with professional photography, 3D tours, on-demand showings, instant screening, and automated lease generation, so more prospects see your unit and good tenants sign sooner.

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Sounds great, right? Simply head over to our homepage, and let’s get you signed up.