Cash-on-Cash Return Calculator
Calculate the annual cash-on-cash return on a buy-to-let or property investment.
What this calculator does
Cash-on-cash return answers one question precisely: what percentage does the money you actually put in earn each year? Enter the property price, your deposit, the monthly rent, annual running costs, and a void allowance, and the calculator returns net operating income, the yield, and the cash return on your capital.
The gap between yield and cash-on-cash is where the useful information sits. Yield describes the property and ignores your borrowing. Cash-on-cash divides pre-tax cash flow — net operating income less mortgage interest — by the capital you committed. Two landlords buying the same flat with different deposits and different rates see the same yield and very different cash returns.
When to use it
Use it when weighing a buy-to-let against alternatives that quote a percentage: a stocks and shares ISA, a fixed-rate savings bond, or overpaying your own residential mortgage. Expressing property as a percentage return on capital is what makes that comparison possible.
It is also the tool for sizing your deposit. Run 25, 35, and 45 percent: if the return falls as you put more in, the property yields more than the mortgage costs and borrowing is working for you. If it rises, your interest rate exceeds the property's yield and less leverage is better. In a market where buy-to-let rates sit near or above net yields, that test frequently points to a larger deposit than lenders require.
Understanding the inputs
Deposit is the field the calculator treats as your capital, but the honest number includes the stamp duty surcharge, legal fees, survey, mortgage product fee, and any work needed before letting. Entering that combined figure gives you a return you can rely on rather than one that ignores five figures of unrecoverable cost.
Monthly rent should come from live comparable listings, not the vendor's estimate. Annual expenses should include letting agent fees of eight to twelve percent plus VAT, buildings insurance, ground rent and service charge if leasehold, gas and electrical safety certificates, and a maintenance allowance — but not the mortgage. Void rate at five percent is a reasonable default; raise it for student or high-turnover lets.
How is this calculated?
Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
A worked example
Take a £185,000 flat with a 25 percent deposit of £46,250 and a £138,750 interest-only buy-to-let mortgage at 5.4 percent, costing about £7,493 a year. Rent is £1,050 a month and running costs are £2,900 a year.
Gross rent is £12,600; after a five percent void allowance, £11,970, and after costs net operating income is £9,070. Deducting interest leaves £1,578 of pre-tax cash flow, or 3.41 percent on the deposit. Now add the real acquisition costs: £10,450 of stamp duty including the five percent surcharge, plus roughly £3,000 in legal and survey fees. Cash invested becomes £59,700 and the return falls to about 2.64 percent — below what a fixed-rate savings account pays.
Limitations and assumptions
The figure is pre-tax, and for a UK landlord that is a serious caveat. On the example above, a higher-rate taxpayer pays 40 percent on the £9,070 profit calculated before interest, or £3,628, reduced by a 20 percent credit on the £7,493 of interest, giving £2,129 of tax against £1,578 of cash flow — a post-tax loss of roughly £551. Section 24 is the single largest reason UK buy-to-let arithmetic has changed.
It is also a single-year snapshot that excludes capital growth, capital repayment, and capital gains tax on sale, and it assumes rent and costs stay flat. It cannot model a non-paying tenant, a service charge increase, cladding remediation, or future EPC requirements. Get an accountant's view of the tax position before treating this percentage as your return.
Common Questions
- What counts as cash invested?
- The deposit plus every unrecoverable acquisition cost: the stamp duty surcharge, conveyancing and searches, survey, mortgage product and valuation fees, and any refurbishment before letting. On a £185,000 purchase these easily add £13,000 to £15,000 to a £46,250 deposit, which changes the return substantially.
- How does this differ from rental yield?
- Yield measures the property and ignores your mortgage. Cash-on-cash measures your money and includes interest. A property with a 6 percent net yield financed at 5.4 percent produces a cash return above 6 percent on the deposit; the same property at 7 percent interest produces one below it.
- Does Section 24 mean my real return is lower?
- For higher-rate taxpayers, yes, and often dramatically. Mortgage interest is not deductible — you receive a 20 percent tax credit instead — so tax is charged on rental profit calculated before interest. A property showing positive pre-tax cash flow can end up negative after tax on a leveraged higher-rate holding.
- Should I hold buy-to-let in a limited company?
- Companies still deduct mortgage interest in full and pay corporation tax on profit, which is why most new higher-rate landlord purchases are made this way. Weigh that against higher company mortgage rates, roughly 0.5 to 1 percentage point, annual accounts, and dividend tax on extracting the money.
- What is a good cash-on-cash return in the UK?
- Six to ten percent pre-tax is a realistic target in higher-yielding regions such as the North West, North East, and parts of Yorkshire. In London and the South East, leveraged cash returns are frequently under three percent, which means the investment case rests almost entirely on capital growth.
- How does an interest-only mortgage change it?
- It raises cash-on-cash by removing capital repayment from the outgoings, which is why most UK buy-to-let is interest-only. The balance never falls, so you build equity only through capital growth and you face refinancing the full amount at every deal expiry, at whatever rates exist then.
- Should I include capital repayment in the return?
- No. Cash-on-cash is deliberately a cash measure, and capital repayment does not reach your bank account. Track it separately. Mixing the two makes a repayment mortgage look identical to an interest-only one on the return figure when their cash positions are very different.
- How much does the stamp duty surcharge cost my return?
- More than most landlords expect, because it is dead capital that never earns. On a £185,000 second property the five percent surcharge alone is £9,250, plus £1,200 of standard duty. Adding £10,450 to a £46,250 deposit cuts a 3.4 percent return to under 2.8 percent before anything else is counted.
- Does this figure account for voids and arrears?
- Only through the void rate you enter. It does not model a tenant who stops paying while a possession claim runs, which under current court timescales can mean six months or more of no rent alongside legal costs. Rent guarantee insurance is worth pricing into the expense figure.
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