How Much Cash Flow Should Your Rentals Make? - BiggerPockets Real Estate Podcast Recap

Podcast: BiggerPockets Real Estate Podcast

Published: 2026-01-30

Duration: 22 min

Summary

In this episode, Dave Meyer discusses how to accurately assess cash flow from rental properties, emphasizing the importance of cash on cash return over raw dollar amounts. He shares his target of a 7% cash on cash return and provides insights into calculating and understanding these metrics.

What Happened

Dave Meyer opens the episode by highlighting the common misconception about cash flow in rental properties. Many investors may think a property that brings in $200 a month is a good deal, but if they had to invest $100,000 to acquire it, that’s not a favorable return. He emphasizes the significance of understanding cash flow from a seasoned investor's perspective, explaining how to calculate it correctly and establish a minimum cash flow target.

Meyer defines cash flow as the total income from rent minus all expenses, including mortgage payments, taxes, insurance, and variable costs. He criticizes simplistic methods of calculating cash flow that only consider rent and mortgage, insisting that a comprehensive approach is necessary for a true assessment. By providing an example, he illustrates that measuring cash flow in absolute dollar amounts is less effective than calculating cash on cash return, which provides investors with a clearer picture of how efficiently their capital is being utilized.

Throughout the episode, Meyer shares his personal target of a 7% cash on cash return by year two for any property he considers. He encourages listeners to determine their own cash flow targets, reinforcing that every investor's number will differ based on their circumstances. Meyer stresses that understanding these calculations and concepts is crucial, especially for those who may not have extensive financial backgrounds, and recommends using BiggerPockets' tools to assist in this process.

Key Insights

• Accurate cash flow calculations must include all income and expenses.
• Cash on cash return is a more effective metric than raw cash flow amounts.
• Investors should determine their own cash flow target rather than relying on general standards.
• Understanding cash flow principles helps investors make informed decisions.

Key Questions Answered

What is the proper definition of cash flow in real estate?

Dave Meyer explains that cash flow is derived from total rental income minus all expenses related to the property. This includes not only mortgage payments but also taxes, insurance, and variable costs. Many people mistakenly believe cash flow is simply the rent minus the mortgage, but Meyer stresses the importance of a comprehensive calculation to understand the true financial performance of an investment.

Why is cash on cash return more important than absolute cash flow?

Meyer emphasizes that cash on cash return offers a clearer picture of how effectively an investor's capital is being utilized. He argues that focusing solely on absolute cash flow amounts can be misleading. For instance, earning $500 a month from a $100,000 investment yields a 6% return, but if the same cash flow comes from a $500,000 investment, the return drops to just over 1%, which is not worth the effort.

How should investors determine their minimum cash flow target?

Meyer shares that his personal target is a 7% cash on cash return by year two for any property he buys. He encourages listeners to establish their own targets based on their unique investment goals and financial situations. This tailored approach ensures that investors are making informed decisions and not just following generic recommendations.

What tools does BiggerPockets offer to help with cash flow calculations?

Meyer points out that BiggerPockets provides calculators designed to help investors easily compute cash flow and cash on cash return. These tools simplify the calculation process and allow users to interpret the numbers effectively, which is particularly beneficial for those who may feel overwhelmed by the math involved in real estate investing.

What common mistakes do investors make when calculating cash flow?

Meyer notes that many investors miscalculate cash flow by ignoring various expenses or adopting overly simplistic formulas. He warns that those claiming high cash on cash returns may not be analyzing their deals correctly. It’s crucial for investors to adopt a comprehensive approach to ensure their expectations align with the reality of their investments.