What are the key takeaways from this BiggerPockets Real Estate Podcast episode?

Key insights include: **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.

How long is this episode of BiggerPockets Real Estate Podcast?

This episode is 22 minutes long. SignalCast provides an AI-generated summary so you can get the key insights in about 3 minutes.

BiggerPockets Real Estate Podcast

How Much Cash Flow Should Your Rentals Make?

January 30, 2026

22 min episode · 2 min read

Episode

22 min

Read time

2 min

Topics

Personal Finance, Investing, Fundraising & VC

AI-Generated Summary

Published Jan 30, 2026

Key Takeaways

✓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.

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.

Notable Moment

Meyer reveals he regularly purchases properties with negative day one cash flow, contradicting conventional wisdom about immediate returns. He accepts short-term losses when clear stabilization plans exist, prioritizing defensive positioning that prevents forced sales during economic disruptions. This approach has produced some of his best-performing investments over his sixteen-year career.

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Episode Transcript

How much cash flow should your rental actually make? Because it may sound great if a property will cash flow $200 a month, but if you have to invest a $100 to buy that deal, that's a bad deal. So today, I'll explain how to think about cash flow like an experienced investor, how to calculate the number correctly, how to decide what your minimum cash flow target should be. I'll walk you through a simple deal example and explain why cash on cash return matters much more than the raw dollar amount you're earning, and I'll give you my take on how to adjust your cash flow analysis for the 2026 market. And I'm just gonna go ahead right now and spoil this entire episode and say that my answer is 7%. I want a 7% cash on cash return by year two for any property I buy right now. But that is just my number. Yours is gonna be different. And by the end of this episode, you'll know exactly how to calculate your number. So if you wanna stop guessing about IRRs and cap rates and start evaluating deals that will build your net worth, you can't miss this episode. What's up, everyone? I'm Dave Meyer, chief investment officer at BiggerPockets and a guy who has literally analyzed thousands, I don't know, maybe tens of thousands of real estate deals. And today, I'm sharing how I think about cash flow as I continue to buy residential properties in 2026. We're gonna start today by just defining cash flow for anyone who is new around here or for people who are confused on how to calculate it, because there's a lot of bad information out there about what is cash flow. The proper definition of cash flow is taking your total income, so that's all of your rent for a specific property, and then subtracting all of your expenses. That does include your mortgage. It includes taxes and insurance, but it also includes some of those variable expenses like repairs, maintenance, vacancy, turnover cost. All that has to be calculated before you figure out cash flow. There are a lot of videos out there and people out there who say cash flow is just taking your rent and subtracting your mortgage payment. That is not correct, and that is not the cash flow that we are talking about in this episode. We're talking about real cash flow here. So keep that in mind as we go on. Because if you hear people say, I'm getting a 10 or 15% cash on cash return, honestly, I don't think it's that they're getting good deals. I think that they're actually calculating it wrong. So make sure that you're doing this right, and you keep your expectations appropriate to the right number and the right way of calculating it. So now that we know what cash flow is, how do you go about measuring this? Because you can measure it in …

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