Alright so, a buddy of mine texted me and said, “Hey, Brandon! I’ve got this real estate deal I want to buy and it should produce between $100 and $200 per month in cash flow. Is that a good deal? What do you think?” Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Basically, $100 to $200 per month is something people oftentimes hear me say. What Is Considered ‘Good’ Cash Flow on Rental Properties? I host a webinar every week on BiggerPockets (it’s available for free at BiggerPockets.com/webinars), where I talk about this idea: I generally aim for $100 to $200 in cash flow per unit that I buy. So, for the duplex, I want to $200 minimum; if it’s a fourplex, I want $400 minimum. And that’s cash flow leftover in my pocket after all of the bills have been paid, after everything is said and done. I want at least a minimum of $100 per month per unit on a multifamily, or on a single family house, I usually aim for about $200—again, after all of the bills have been paid. Now, I say that, but then there’s a caveat there. Because it really depends on how big the deal is, right? I mean, I think about it this way. If you were to invest a million dollars into any kind of investment and you’re making $100 a month, is that a good deal? It doesn’t sound like a very good deal. But if you were to invest $500 into an investment and every single month you made $100, that’s the best investment in the world, right? And so, the idea of cash flow per unit or cash flow per door is a great metric. But it’s only one metric that you can really go by. There’s another metric that we care a lot about, as well: cash-on-cash return. That’s another metric I look at a lot. Cash-on-cash returns is what percentage of my investment that I make back this year in cash flow. To do some basic math, if you invested $1,000 into an investment and you made back $100 in the whole year, that is a 10 percent return. Cash-on-cash return is how much money you made in profit in cash flow during the year divided by how much money you put into the deal. So, going back to my buddy who asked me if $100 or $200 may be a good deal for the single family house he wants to buy. Well, the question I asked him was: “How much money did you put into it?” His answer was $74,000. What Is Considered a ‘Good’ Cash-on-Cash Return? OK, here’s some basic math. If you were making $200 per month every single month, then that’s $2,400 a year. That amount divided by $74,000 is 3.2 percent. Is 3.2 percent cash-on-cash return a good deal? For me, no. That’s NOT a good deal. My minimum that I generally aim for is between 10 and 12 percent. I really want to see 12 percent. Now, why did I pick that number? Related: Introduction to Real Estate Investment Deal Analysis Well, on average, the stock market has returned between 6 and 7 percent over the past hundred years. But I wanted to get a lot better than that. So 12 percent became a really good rule of thumb for me. I can’t just rely on 12 percent though, because you’ve got to also look at the total amount of cash flow you’re getting. Here’s why. If you invested a dollar into a real estate deal and you made two bucks a year, is $2 a year in profit worth all the headache of putting into a real estate deal? Probably not, because you’re only getting $2 a year. But that’s a 200 percent cash-on-cash return… so shouldn’t you do it? Well, no, because it’s only two bucks. I don’t care about that. That’s why I look at both those numbers. I want a cash-on-cash return of a minimum 12 percent. I might go slightly lower than that if I believe the market is doing really well appreciation-wise—like if property value’s going to climb. In fact, I actually just bought a property here on the island of Maui in Hawaii, and I’m only going to get just under a 10 percent return. Why would I do that? Why would I violate my rules? Because it’s Maui, and I believe that prices on an island are going to go up really well. So, I will budge a little bit. What Is a ‘Good’ Overall Return? So, I want both those things: I want a minimum of $100 per month per unit, personally, and I want minimum 12 percent cash-on-cash return. That’s my general line of thought. Then, there’s one more metric that I look at: overall return. There’s a couple of ways to look at it. Some people look at IRR, which is called internal rate of return. I kind of look at just an average rate of return. There’s, again, a few different formulas for figuring it out, but it kind of tells you the same thing. The idea is, if you hold this property for, let's say five or 10 years, and property values go up a little bit, the loan gets paid down a little bit. Over that timeframe, what's my average return each year? And so for that, I typically shoot for around 15 percent when I go into an investment. Related: The Ultimate Analysis: Cash on Cash Return vs. Overall Return In fact, I’m doing a big syndication deal right now, where I’m raising money for a big real estate deal. It’s a big mobile home park conglomerate that I’m buying. And that’s always the metric that we were aiming to beat. I wanted to be able to give investors at least 15 percent. Because if you can get 15 percent by doing your own deal, or 15 or more by investing in somebody else’s, why would you do your own deals? That was the logic behind picking that 15 percent number in our syndication fund. So, that’s kind of the idea of how I look at a deal and whether I’m going to do it or not. There’s the $100 per month per unit minimum, 12 percent cash-on-cash return, and then a 15 percent average return per year. And again, if you want to look at IRR or some more complicated metrics like that you can. If you like this video, make sure you give me that thumbs up button on the video above and let me know you want more informational videos like this in the comments below. Questions about anything above? Let’s discuss in the comment section.