How to Set Your Rental Investment Goals

What it means: what you keep each month after the mortgage and all running costs. See rental property cash flow.

Our default: at least $0 a month, meaning the property pays for itself. It works at any price level, so it suits every deal. Safety is judged separately by the stress case.

Choosing yours: if you want income, set a monthly amount. If you are building wealth and can top up the mortgage, $0 may be enough. Rule of thumb: the less cash you can spare, the higher this should be.

What it means: your yearly cash flow divided by the cash you put in (down payment plus closing costs). It is the yearly rent return on your own money. See cash-on-cash return.

Our default: at least 6%. A rental takes work and risk, so it should earn more than a safe savings account or government bond pays. A target like 8% would reject almost everything at today's mortgage rates.

Choosing yours: look at what your cash would earn with little risk today, then add a premium for effort and risk. That is your floor.

What it means: how many times the property's income covers the loan payments. At 1.0 it just covers them; below 1.0 you pay the difference. See the DSCR guide.

Our default: at least 1.25. Many lenders ask for something around 1.2 to 1.25 on an investment loan, so a deal below that may be hard to finance.

Choosing yours: ask your lender for its minimum and add a little margin. A higher number leaves more room for a bad year.

What it means: the yearly income of the property before the loan, divided by its price. It compares properties regardless of how they are financed. See what is cap rate.

Our default: off. Cap rates differ a lot between cities and property types, so a single number would be wrong somewhere. If you turn it on, we suggest 5% as a starting point, and you should replace it with what is normal where you are buying. See what a good cap rate is.

Choosing yours: compare recent sales or listings of similar properties in the same area and use their typical cap rate as your reference.

1. Decide what the property is for: income now, growth later, or both.
2. Pick the one or two goals that matter most and turn off the rest.
3. Check each against what you could earn elsewhere with less effort.
4. Test them: if every deal you look at fails, the goal may be unrealistic for your market.

Goals are not guarantees. A deal that meets them can still go wrong, which is why the report also shows how much can go wrong before cash flow hits zero. Read stress testing for more.

A goal that was easy to meet when mortgage rates were low can be impossible when they are high, because the loan payment takes a bigger share of the rent. Markets differ too: expensive cities often offer lower yields and more growth, and cheaper areas the reverse.

Your own situation changes as well. More savings, a bigger portfolio or a nearer retirement can all justify a different target. Revisit your goals when rates move, when you look at a new area and at least once a year. Typical goals in the analyzer are marked as such until you edit them, and you can reset them any time.