The 7% Cash-on-Cash Property Screen
Demand a minimum net cash return on invested property capital
- Difficulty
- Advanced
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 98%
Singh says he looks for at least a 7% cash-on-cash return when buying rental real estate. The metric compares annual cash flow after expenses with cash invested in the deal. In his simplified debt-free example, a $100,000 purchase should produce at least $7,000 per year after expenses. He prefers single-family homes and multifamily apartments based on experience and uses property managers because he wants to acquire rather than manage. The repeatable rule is to calculate net cash before buying and reject a deal that misses the minimum. The 7% threshold is Singh's personal screen, not a universal standard. His simplified example omits details needed in real underwriting, including financing, taxes, vacancies, capital expenditure, and legal exposure.
Origin
Extracted from The Diary of a CEO
Core principles
- 01Buy for cash flow rather than hoped-for appreciation
- 02Judge returns after expenses
- 03Use invested cash as the denominator
- 04Separate acquisition from management when desired
How to run it
- 1
Calculate invested cash
Add cash required to acquire and prepare the property.
Pro tip Include renovation and setup money.
- 2
Estimate net cash flow
Forecast rent and subtract operating expenses.
Pro tip Use documented local figures.
Watch out The episode gives no complete expense checklist.
- 3
Compute the return
Divide annual cash flow after expenses by total cash invested.
Pro tip Express it as a percentage.
- 4
Apply the threshold
Compare the result with the chosen minimum; Singh uses 7%.
Watch out A high projection can reflect high risk or bad assumptions.
- 5
Verify operations
Choose and document a suitable management model, contractor, and tenant process.
Pro tip Check contracts and references.
Watch out Singh's early informal arrangements caused avoidable problems.
In the wild
Singh imagines buying a $100,000 house with cash. After operating expenses, rent must leave at least $7,000 a year to meet his threshold.
→ The deal receives a clear projected cash-flow benchmark.
Common mistakes
Using gross rent
The screen uses cash flow after expenses, not rent before costs.
Rushing the operating team
Weak contractor and manager selection can invalidate the spreadsheet.
Is it for you?
Best for
It is best for rental-property investors comparing deals primarily for cash flow.
Not ideal for
It is not ideal as complete underwriting because financing, taxes, vacancies, legal risk, and local conditions need deeper work.
From the transcript
“I look for a 7% cash on cash return, minimum”
“I want 7 cents of cash flow after expenses”
From the episode
The Savings Expert: Are You Under 45? You Probably Aren’t Getting A Pension! Do Not Buy A House! This Is Probably Why You’re Broke! - Jaspreet Singh