Cash Flow, Cap Rate and Cash-on-Cash Return for San Diego Rentals

by Trevor Landress

Cap rate, cash flow and cash-on-cash return are three ways to look at what a rental might earn. At the time this article was written (October 2026), the U.S. Census Bureau's QuickFacts listed a median gross rent of $2,246 and a median owner-occupied home value of $854,700 for San Diego County, based on 2020 to 2024 survey data. I use those two numbers in a made-up example below, with my own math. This guide teaches the terms. It is not investment, tax or legal advice, and I am a REALTOR, not a tax advisor or lender.

The short answer

Net operating income (NOI) is rent minus the costs of running the property, before loan payments.
Cap rate is NOI divided by price. Cash flow is NOI minus loan payments. Cash-on-cash return is cash flow divided by the cash put in.
My made-up example uses Census medians. At the county median rent, it shows a 1.5% cap rate and negative cash flow.
Real rents, costs, loan terms and taxes differ for every property, and none of these numbers are guaranteed.
This is general information only. Please talk with a lender, a CPA or a tax professional about your own situation.

Three terms in plain words

Investors use a few simple ratios to compare rentals. Here is how I define them in this guide.

Net operating income (NOI): yearly rent after vacancy, minus the costs of running the property. It leaves out loan payments.
Cap rate: NOI divided by the purchase price. It shows the yearly return on the price, as if the buyer paid all cash.
Cash flow: NOI minus the yearly loan payments. It is what is left, or what is missing, after paying the loan.
Cash-on-cash return: yearly cash flow divided by the cash the buyer put in, such as the down payment and closing costs.

These are common definitions, not legal ones. Lenders and investors may build them in different ways, so it helps to ask how any number was figured.

What the Census says about San Diego County

At the time this article was written, the Census Bureau's QuickFacts page for San Diego County showed these numbers from the 2020 to 2024 American Community Survey.

Measure	San Diego County
Median gross rent	$2,246
Median value of owner-occupied homes	$854,700
Owner-occupied housing unit rate	54.6%
Households	1,171,278

If 54.6% of homes are owner-occupied, then about 45.4% are not, which is my math. Many of those are rentals. The median rent covers all kinds of rentals, from small apartments to houses, and the median value covers all owner-occupied homes. Neither is the rent or the value of any one property.

As a rough check, my math puts the yearly median rent at $26,952. Divided by the median value, that is about 3.2% before any costs. It shows the scale. It is not a forecast.

A made-up example: the setup

Here are my assumptions. The price and the starting rent come from the Census medians above. Everything else is invented to show the steps.

Price: $854,700.
Down payment of 25%: $213,675. Closing costs of 2% (invented): $17,094. Cash put in: $230,769.
Loan: $641,025 at an invented 6.5% rate for 30 years. My math gives about $4,052 a month, or $48,621 a year, for principal and interest.
Vacancy of 5% of rent (invented).
Yearly costs: property tax at the 1% base rate ($8,547), insurance of $1,800 (invented) and repairs and reserves of $2,700 (invented). Total $13,047. No property manager is included.

The 1% base rate is explained in my overview of San Diego property taxes. A real bill can include bonds and special charges, and it depends on the assessed value.

A made-up example: the results (my math)

The first row uses the county median rent. The other two rows use invented higher rents, since a single home can rent for more than the median across all rentals.

Monthly rent	Rent per year	NOI	Cap rate	Cash flow per year	Cash-on-cash
$2,246	$26,952	$12,557	1.5%	-$36,063	-15.6%
$3,000	$36,000	$21,153	2.5%	-$27,468	-11.9%
$4,000	$48,000	$32,553	3.8%	-$16,068	-7.0%

In this example, the loan payments are bigger than NOI in every row, so cash flow is negative. That comes from my invented assumptions, including the rate and the 25% down payment. A buyer with a larger down payment, a lower rate or a higher rent would see different numbers. The point is to show how the three measures connect, not to say what any property will do.

What the numbers leave out

Cash flow is only one part of the story. Some investors also look at things such as possible rent growth, the loan balance going down over time, tax rules and changes in value. None of these are guaranteed, and a home can also lose value.

Rules can also change the rent side. The state rent cap I summarize in my overview of rent increase rules in San Diego limits increases on many long-term rentals. Costs can rise too. Property tax can change, and repairs can cost more than planned.

A note on taxes

At the time this article was written, IRS Publication 527 for 2025 returns said residential rental property is depreciated over 27.5 years and that land cannot be depreciated. It said depreciation starts when the property is ready and available to rent. The publication also lists common deductible rental expenses, such as maintenance, insurance, taxes, mortgage interest, advertising, management fees, utilities and repairs, and it says capital improvements are handled differently.

I am not a tax advisor, so I will not say how any of that applies to a person. I left taxes out of my example on purpose. A CPA or tax professional can explain how rental income, depreciation and expenses would work for a specific buyer.

Please talk with a professional

The numbers here are medians from a survey and invented assumptions. They are not a quote, an appraisal or a loan offer, and they are not a promise of any return.

I am a REALTOR, not a lender, CPA or attorney. Please talk with a lender about loan terms and a CPA or tax professional about taxes before you make any decision about an investment property.

Questions people bring to a lender or tax professional

How was the rent figure chosen, and is there a signed lease or appraisal to support it?
Which costs are included in NOI, and which are left out?
What loan terms and down payment were used?
How could taxes, depreciation and deductions apply?
What happens to the numbers if rent is lower or costs are higher?

Call or text me at (619) 402-4614 or send me a message.

Call or text (619) 402-4614 Contact Trevor Landress

Related guides

Frequently asked questions

What is a cap rate in real estate?

It is net operating income divided by the purchase price. It is one way to compare properties as if each were bought with cash. Definitions can vary, so ask how a number was figured.

What is the difference between cap rate and cash flow?

Cap rate leaves out the loan. Cash flow subtracts the yearly loan payments from net operating income. A property can have a cap rate and still have negative cash flow.

What is cash-on-cash return?

It is yearly cash flow divided by the cash put into the purchase, such as the down payment and closing costs. A lender or CPA can help with a real calculation.

What is the median rent in San Diego County?

At the time this article was written, the Census Bureau's QuickFacts listed a median gross rent of $2,246 for San Diego County, using 2020 to 2024 survey data. It covers all rentals and is not the rent of any one home.

How is rental property depreciated?

At the time this article was written, IRS Publication 527 for 2025 said residential rental property is depreciated over 27.5 years and land is not depreciable. Please talk with a CPA or tax professional about your own case.

About the author

Trevor Landress is a San Diego REALTOR® with Coldwell Banker West (DRE# 02126901). He was born and raised in San Diego and has been licensed since 2021. Trevor helps homeowners sell, guides first-time buyers through the home buying process and assists investors with their next acquisition. His work includes negotiating offers, analyzing market trends, building pricing strategies and running marketing campaigns for his listings.

He serves clients across San Diego County, from coastal communities like La Jolla, Del Mar and Carlsbad to neighborhoods inland. Trevor is part of the Campbell Group, a three-generation real estate team, and he and the Campbell Group consistently rank as a top producing team at Coldwell Banker West each month. He writes these guides to help San Diego buyers and sellers navigate an ever-changing market.

Each guide on this blog is built from official or primary sources, and the text names the source and the month it was checked. When a fact can go stale, such as a rate, a fee, a deadline or a rule, the guide says so. The goal is plain answers you can use before you make a big decision.

Trevor is a REALTOR, not a tax advisor, attorney, lender or contractor. For questions in those areas, he recommends you check with the right professional. To talk through your plans, call or text (619) 402-4614 or contact Trevor Landress.

How I help San Diego home buyers

Trevor guides first-time buyers through the home buying process, from setting a budget to closing. His work includes negotiating offers and analyzing market trends so buyers understand what a home may really cost to own.

How I help San Diego home sellers

Trevor helps homeowners sell with pricing strategies, marketing campaigns, offer negotiation and market analysis, so sellers know what to expect before they list.

Sources

This guide is general information only. It is not tax, legal or financial advice, and I am not a tax professional or an attorney. Please talk with a licensed CPA, tax professional or attorney, and with the County or the agency named above, before you make any decision.