How Much Cash Flow Should Your Rentals Make?

Quick Overview

The required minimum cash flow target for an experienced investor like Dave Meyer in the current market is a 7% cash-on-cash return expected by the time the property is stabilized, not necessarily on day one, because this target helps achieve a minimum 12% annualized return when factoring in amortization and tax benefits, which significantly outperforms the stock market's historical 8-10% return.

Key Points: The proper definition of cash flow requires subtracting all expenses, including mortgage, taxes, insurance, repairs, maintenance, vacancy, and turnover costs, from total rent. Cash on cash return is the recommended metric, calculated by dividing total annual cash flow by the total cash invested into the property, measuring efficiency rather than just absolute dollars. Dave Meyer's target is a 7% cash-on-cash return by year two, which stabilizes his total annualized return to at least 12% (7% cash flow + 3% amortization + 2% tax benefits). Investors should evaluate stabilized cash flow, which is the return after executing the business plan (like raising rents to market value or value-add renovations), rather than day one cash flow. Cash flow and appreciation are a tradeoff; investors favoring high appreciation (like in San Francisco or Austin) might accept a lower stabilized cash-on-cash return, potentially as low as 3% if upside potential is significant. Investors must underwrite pessimistically, avoiding optimistic assumptions about rent increases or appreciation, preferring a pessimistically underwritten 5% deal over an optimistically projected 12% deal.

Context: Dave Meyer, Chief Investment Officer at Bigger Pockets, explains how experienced real estate investors should calculate and target required cash flow from rental properties, emphasizing the importance of return on investment efficiency over raw monthly dollar amounts. He stresses that current market realities in 2026 make finding high day-one cash flow difficult, shifting focus toward stabilized returns achieved after executing a business plan, such as value-add renovations or market rent adjustments.