How Much Cash Flow Should Your Rentals Make?

What It Covers

Dave Meyer explains how to evaluate rental property cash flow using cash on cash return instead of raw dollar amounts. He targets 7% stabilized cash on cash return by year two, calculated by dividing annual cash flow by total investment, ensuring returns exceed stock market averages when combined with loan paydown and tax benefits.

Key Questions Answered

• •Cash Flow Calculation: True cash flow equals total rental income minus all expenses including mortgage, taxes, insurance, repairs, maintenance, vacancy, and turnover costs. Many investors incorrectly calculate cash flow by only subtracting mortgage payments from rent, leading to inflated return expectations of 10-15% when realistic returns are much lower with proper accounting.
• •Cash on Cash Return Target: Meyer targets 7% stabilized cash on cash return within 12-18 months, not day one. Combined with 3% from loan amortization and 2% from tax benefits, this achieves 12% total annualized return. Over 20 years, $100,000 at 12% grows to $964,000 versus $466,000 at 8%, demonstrating how small percentage differences compound dramatically.
• •Appreciation vs Cash Flow Spectrum: Properties with strong upside potential in growing neighborhoods justify accepting 3% cash on cash return minimum. Properties in established areas with limited growth potential require 8% or higher cash on cash return. Younger investors should favor appreciation while maintaining positive cash flow; older investors prioritize higher cash flow for income generation.
• •Stabilization Strategy: Day one cash flow is rare in 2026 markets. Execute business plans through raising below-market rents to fair market value or value-add renovations that increase rents from $1,000 to $1,500 monthly. Never buy properties that cannot achieve positive cash flow within 12-18 months, as negative cash flow creates forced selling risk during job loss or market downturns.
• •Conservative Underwriting: Always underwrite worst-case scenarios rather than optimistic projections. A 5% cash on cash return deal with pessimistic assumptions outperforms a 12% deal based on speculative rent growth or appreciation. Account for rising taxes, insurance, and expenses in projections. Cash flow ensures property retention during market cycles, which is essential for long-term wealth building.