A strong ROI on rental property typically falls between 8% and 12%, though this varies by location and market conditions. Absentee homeowners can reach this target by reducing vacancy rates, setting competitive rent prices, and partnering with professional property management services.
According to the Federal Reserve Bank of St. Louis, the national rental vacancy rate stood at 6.8% in 2024. Every month a property sits empty means lost income and reduced returns. For Memphis property owners who live out of state, managing these challenges from afar can feel overwhelming.
With the right rental income strategies in place, your investment property can deliver consistent returns year after year.
What Is a Good ROI on Rental Property?
Most experts agree that a good ROI on rental property ranges from 8% to 12%. Some investors accept lower returns of 5% to 6% in stable markets with strong appreciation potential. Others target 15% or higher in emerging markets that carry more risk.
Several factors affect what counts as a “good” return for your situation:
- Location and market demand: Properties in high-demand areas command higher rents and experience fewer vacancies
- Property condition: Well-maintained homes attract quality residents who stay longer
- Financing terms: Lower interest rates and favorable loan terms boost your net returns
- Management efficiency: Professional oversight reduces costly mistakes and turnover expenses
According to YCharts, the U.S. rental vacancy rate reached approximately 7.2% in Q2 2025, up slightly from 7.1% the previous quarter. With vacancy rates trending upward, effective property management becomes essential for protecting your real estate investment returns.
Your goals also matter when defining a good return. Cash flow-focused investors want higher cap rates. Those seeking long-term appreciation might accept lower immediate returns.
How Do You Calculate Rental Property ROI?
Learning to calculate rental property ROI helps you make smarter investment decisions. The basic formula is straightforward:
ROI = (Annual Net Profit ÷ Total Investment) × 100
Here’s what goes into each part of that equation:
- Annual rental income – All rent collected over 12 months, plus pet fees and parking charges
- Operating expenses – Property taxes, insurance, repairs, maintenance, and management fees
- Total investment – Purchase price, closing costs, and any renovation expenses
Example for a cash purchase: You buy a Memphis rental for $150,000 and spend $10,000 on closing costs and repairs. Your total investment is $160,000. The property generates $18,000 in annual rent with $6,000 in expenses. Annual net profit: $12,000.
ROI = ($12,000 ÷ $160,000) × 100 = 7.5%
Example with financing: Put 20% down ($30,000) and finance the rest. After mortgage payments and expenses, annual cash flow is $4,200. Total cash invested: $40,000.
ROI = ($4,200 ÷ $40,000) × 100 = 10.5%
Notice how leverage increases your property return rate. You invest less cash upfront and achieve a higher percentage return. This is why many investors use financing to build portfolios faster.
Rental Income Strategies That Improve Returns
Maximizing your property return rate often comes down to operational efficiency rather than market timing. These proven rental income strategies can boost your bottom line without buying additional properties:
Reduce Vacancy Periods
According to Yield Pro, since 2010, professionally managed apartments have averaged about 5% vacancy compared to 8.5% for the broader multifamily market. Each month of vacancy cuts annual income by more than 8%.
Set Optimal Rent Prices
Price too high, and your property sits empty. Price too low and you leave money on the table. Research comparable Memphis rentals to find the sweet spot.
Screen Residents Thoroughly
Quality residents pay on time, care for your property, and renew their leases. Turnover costs often exceed $2,000 per instance, including lost rent, cleaning, and repairs.
Maintain the Property Proactively
Small repairs today prevent expensive emergencies tomorrow. Regular maintenance keeps residents happy and more likely to renew.
Consider Professional Memphis Property Management
Management fees typically run 8% to 10% of monthly rent. In return, you get lower vacancies, better residents, and no midnight phone calls.
Strategic upgrades also boost your investment property value:
- Fresh paint and updated fixtures for high visual impact
- Energy-efficient appliances that reduce utility costs
- Modern laminate or vinyl plank flooring
- Curb appeal improvements that attract quality applicants
Each of these improvements can justify rent increases that far exceed the initial cost, accelerating your path to stronger returns.
Frequently Asked Questions
What Is the 1% Rule in Real Estate Investment?
The 1% rule suggests monthly rent should equal at least 1% of the purchase price. A $150,000 property should rent for $1,500 or more. This quick calculation helps investors screen potential deals before diving into detailed analysis.
Keep in mind that many competitive markets no longer meet this guideline, so use it as a starting point rather than a hard rule.
How Does Property Management Affect My ROI?
Professional management typically improves ROI for absentee owners. Studies show managed properties have vacancy rates nearly 40% lower than self-managed rentals.
Managers also handle resident screening, maintenance coordination, and rent collection. While fees reduce gross income, the combination of lower vacancy periods and fewer costly mistakes often results in higher net returns overall.
What Expenses Should I Include When Calculating Returns?
Include property taxes, insurance, repairs, maintenance reserves, vacancy allowance, and management fees in your calculations. Many new investors forget to budget for capital expenditures like roof replacement or HVAC systems. Setting aside 5% to 10% of rental income for future major repairs helps avoid surprises that can derail your investment property returns.
Can I Improve ROI Without Raising Rent?
Reducing expenses works just as well as increasing income for boosting returns. Lower vacancy through better resident retention programs.
Negotiate better insurance rates by bundling policies. Handle minor repairs quickly before they become major problems. Review your property tax assessment annually for potential errors that cost you money.
Partner With Memphis Property Management Experts
Achieving strong returns on your real estate investment requires attention to detail and local market knowledge. For absentee homeowners managing Memphis properties from afar, the challenges multiply. Maintenance emergencies arise at inconvenient times. Resident issues require prompt attention. Market conditions shift, demanding regular rent reviews.
Reedy & Company specializes in Memphis property management for investors who want professional oversight without daily hassles. Their team handles resident screening, rent collection, maintenance coordination, and everything in between. With local expertise and proven systems, they help owners maximize their ROI on rental property while minimizing stress.
Learn how professional property management can improve your investment returns.
