Cash-on-Cash Return Calculator
Find what percentage the cash you actually put in earns each year, after operating expenses, vacancy and mortgage payments.
What this calculator does
Cash-on-cash return answers a narrow, useful question: what percentage does the cash you actually handed over earn each year? Enter the property price, your down payment, the monthly rent, annual operating expenses, and a vacancy allowance, and the calculator returns net operating income, the cap rate, and the cash-on-cash return.
The distinction between the last two is the whole point. Cap rate strips out financing and describes the property. Cash-on-cash divides annual pre-tax cash flow — NOI minus debt service — by the cash you invested, and describes your position. Two investors buying the identical building on different terms have the same cap rate and very different cash-on-cash returns.
When to use it
Use it when comparing a real estate deal against alternatives that quote a percentage — a bond ladder, a dividend portfolio, or paying down your own mortgage. Cash-on-cash is the metric that makes those comparable, because it is expressed the same way.
It is also the right tool for structuring a deal rather than choosing one. Run the same property at 20, 25, and 35 percent down: if the return falls as you put more money in, the property is producing positive leverage and you should borrow more. If it rises, your loan costs more than the building yields and you should borrow less or walk away. That single test tells you more about a financed rental than any other number.
Understanding the inputs
Down payment is the field the calculator uses as your cash basis, but the honest figure is total cash invested. Add closing costs of roughly two to three percent on an investment loan, plus any rehab needed before the first tenant, and enter that combined total if you want a return you can trust.
Monthly rent should be an achievable market rent, verified against current listings. Annual expenses must exclude the mortgage — debt service is derived from the price and down payment separately — but must include property taxes, insurance, management at eight to ten percent, maintenance, and capital reserves. Vacancy rate at five percent is standard; a single-unit property with one tenant is lumpier than the percentage suggests.
How is this calculated?
Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
A worked example
Take a $260,000 duplex with 25 percent down, so $65,000 of cash and a $195,000 loan at 7.5 percent over 30 years. Combined rent is $2,600 a month and annual operating expenses are $8,400.
Gross rent is $31,200; after a five percent vacancy allowance, $29,640, and after expenses NOI is $21,240 — a cap rate of 8.17 percent. Debt service runs about $16,362 a year, leaving $4,878 of pre-tax cash flow, so cash-on-cash on the $65,000 down payment is roughly 7.5 percent. Add $8,000 of closing costs and light rehab and the honest denominator becomes $73,000, dropping the return to about 6.7 percent — a full point lost to costs most investors leave out.
Limitations and assumptions
Cash-on-cash is a single-year snapshot of a multi-decade asset. It excludes principal paydown, appreciation, and the substantial tax shelter that depreciation provides, all of which are real components of return that this figure deliberately ignores. Used alone it understates a good rental and can flatter a bad one that has simply been refinanced heavily.
It is also acutely sensitive to inputs you control. Understate vacancy, omit management because you plan to self-manage, or forget capital reserves for the roof, and the return can look two or three points better than reality. Cross-check it against the cap rate to see whether your leverage is helping or hurting, and against internal rate of return if you have a defined hold period and exit in mind.
Common Questions
- What exactly counts as cash invested?
- Everything you spend to acquire and stabilize the property: down payment, closing costs, loan origination and appraisal fees, prepaid escrow, and any rehab before the first tenant. Using the down payment alone is the most common way investors flatter their own numbers, often by several percentage points.
- How is cash-on-cash different from cap rate?
- Cap rate ignores your mortgage and measures the property. Cash-on-cash includes debt service and measures your equity. A property with an 8 percent cap rate financed at 7.5 percent produces a cash-on-cash return above 8 percent; the same property financed at 9 percent produces one below it.
- What is a good cash-on-cash return?
- Eight to twelve percent is a common target for leveraged residential rentals. The right benchmark is what the same money earns elsewhere — with Treasuries yielding four to five percent risk-free, a rental returning six percent is poorly compensated for the vacancy, repair, and tenant risk you are taking on.
- Why does more leverage raise the return?
- Because you are spreading the same net income over less of your own money — but only while the property yields more than the loan costs. That is positive leverage. When the cap rate falls below the mortgage rate, leverage works in reverse and each extra dollar borrowed reduces your return.
- Should I include principal paydown in the return?
- Not in cash-on-cash, which is deliberately a cash metric. Principal repayment builds equity but does not appear in your bank account, so counting it here would confuse liquidity with wealth. Track it separately as part of total return alongside appreciation and tax benefits.
- Is this a pre-tax or after-tax number?
- Pre-tax. Depreciation on a residential rental over 27.5 years often shelters most or all of the taxable income, so the after-tax figure is usually better than the pre-tax one — the reverse of most investments. Ask your CPA to model your specific situation before relying on that.
- Does cash-on-cash work for a cash purchase?
- Yes, and with no mortgage it converges on the cap rate, adjusted for the closing costs included in your cash basis. Buying without debt removes the risk that a rate reset or a vacancy leaves you unable to cover the payment, at the cost of a lower return in a positive-leverage environment.
- How does a BRRRR strategy change the calculation?
- Dramatically, because a cash-out refinance returns much of your invested capital. If you put in $70,000 and pull $55,000 back out, the denominator becomes $15,000 and the percentage explodes. Some investors recover everything, producing an infinite return — which is why the metric alone is a poor way to judge risk.
- Why does year one differ from later years?
- Cash-on-cash uses cash invested in year one as a fixed denominator, so as rents rise and the loan stays fixed, the return climbs each year. Investors quote year-one figures because they are conservative and comparable, but the compounding effect over a decade is a large part of why rentals work.
Related calculators
- Cap Rate CalculatorFind the yield a property produces independent of financing, with implied value across a range of cap rates and the gross rent multiplier alongside.
- Gross Rent Multiplier CalculatorThe fastest screen in real estate: purchase price divided by annual gross rent, shown alongside cap rate and implied value.
- Price Per Square Foot CalculatorNormalize asking prices by finished living area so you can place several properties on the same scale.