Question 1

What is a good cap rate for a rental property?

Accepted Answer

A good cap rate depends on your market. In high-appreciation markets (coastal cities), 4 to 5% is common. In cash-flow markets (Midwest, Southeast), 7 to 10% is achievable. Most investors target at least 6% cap rate for a buy-and-hold rental property.

Question 2

How do you calculate cash-on-cash return for a rental property?

Accepted Answer

Cash-on-cash return equals Annual Cash Flow divided by Total Cash Invested, times 100. Total cash invested includes your down payment and closing costs. A good cash-on-cash return is 8 to 12% for most rental property investors.

Question 3

What vacancy rate should I assume for a rental property?

Accepted Answer

Budget 5 to 8% vacancy for properties in strong rental markets. In areas with higher turnover or seasonal demand, use 10 to 12%. The national average vacancy rate for rental properties is approximately 6 to 7%.

Question 4

What is the 1% rule in rental property investing?

Accepted Answer

The 1% rule states that monthly rent should be at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month. While not a guarantee of profitability, properties that meet the 1% rule are more likely to generate positive cash flow.

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