Is it good to buy a rental with 7% interest ratio?

A 7% interest rate on a rental property is not...

REITs

Monday, June 8, 2026

Mauricio Junior SHARE

A 7% interest rate on a rental property is not automatically good or bad. What matters is whether the property produces enough cash flow after all expenses.

A simple way to evaluate it:

Example

Purchase price: $250,000
Down payment: 20% ($50,000)
Loan: $200,000
Interest rate: 7%
30-year mortgage

The principal and interest payment would be about $1,330/month.

Now add:

Property taxes
Insurance
Maintenance
Vacancy reserve
Property management (if applicable)

Your total monthly cost could easily reach $1,800–$2,100+ per month.

If the property rents for:

$1,600/month ? likely negative cash flow
$2,200/month ? small positive cash flow
$2,800/month ? potentially strong cash flow

What investors typically look for

Positive cash flow after all expenses.
Cap rate ideally higher than the mortgage rate.
Cash-on-cash return that beats alternatives such as REITs.
Potential for rent growth and property appreciation.

Compare with REITs

Today, many REITs such as VNQ can provide real estate exposure without:

Tenants
Repairs
Property taxes
Large down payments

If a rental at 7% interest barely breaks even, a REIT may offer a better risk-adjusted return and much less work.

My rule of thumb

A 7% mortgage can still be a good investment if the property generates positive cash flow from day one. If you're relying entirely on future appreciation to make the numbers work, I would be cautious.

All information in this article is not a recommendation.
We show examples, and you need to analyze.
We are not responsible for your decisions and investments.