Cash-on-Cash Return Calculator

Enter the purchase price and down payment percentage, then add every other dollar that leaves your account before the first tenant moves in. For the example above: down payment $62,500, closing costs $7,000, rehab $8,000, for $77,500 of invested capital.

On the income side, $33,000 of gross rent less a 5% vacancy allowance of $1,650 gives $31,350 of effective gross income. Subtract $11,000 of operating expenses (taxes, insurance, management, maintenance, and reserves, but *not* the mortgage) and net operating income is $20,350.

Subtract $11,400 of annual debt service and annual cash flow is $8,950, or $746 a month. Cash-on-cash return is 11.55%, comfortably inside the 8–12% band.

Two supporting numbers put that in context. Cap rate is 8.14% (the return the property would produce with no mortgage at all), so leverage is adding roughly three and a half points here, which is what borrowing at a rate below the property's unleveraged yield does. And DSCR is 1.79, well above the 1.20–1.25 floor most lenders require. The operating expense ratio comes out at 35.1% of effective gross income, at the optimistic end of the usual range and worth double-checking against real quotes.

Leverage cuts both ways, and cap rate will not warn you. Take a $420,000 property with 20% down ($84,000), $12,000 closing, no rehab, renting for $39,600 a year at 6% vacancy, with $17,000 of operating expenses and $25,800 of annual debt service.

Effective gross income = $37,224. Net operating income = $20,224. Cap rate = 20,224 ÷ 420,000 = 4.82%. That is unexciting, but not obviously a disaster.

Then debt service lands. Annual cash flow = 20,224 − 25,800 = −$5,576, a loss of $465 every month. Cash-on-cash return is −5.81% on $96,000 of invested capital, and DSCR is 0.78. The property produces only 78 cents of operating income for every dollar of mortgage payment.

Nothing about this property is bad; the financing is. The same building bought with more cash down, or at a lower rate, or at a lower price, produces positive cash flow. That is precisely why cash-on-cash is the metric leveraged investors underwrite to and cap rate is not: a DSCR below 1.0 means the asset cannot cover its own debt, and most lenders will decline the loan before you get the chance to find out the hard way.

Cap rate measures the property; cash-on-cash measures your position in it. Cap rate divides NOI by price and ignores financing entirely, which makes it the right tool for comparing two buildings against each other. Cash-on-cash divides cash flow by cash invested and is dominated by the mortgage, which makes it the right tool for comparing this deal against putting the same money somewhere else. Neither is more correct; they answer different questions, and quoting one when you mean the other is how deals get mis-sold.

DSCR is the lender's version of the same question. At 1.25 a property generates 25% more operating income than its debt payment, which is the usual commercial floor; below 1.0 it cannot cover the mortgage from operations at all. If your cash-on-cash is negative, DSCR will already have told you why.

What cash-on-cash misses is most of the return. It counts only pre-tax cash in a single year, so it excludes appreciation, the principal you pay down each month (which is your money moving from income into equity, not a loss), depreciation and the tax shelter it creates, and any rent growth after year one. A property at 4% cash-on-cash with strong appreciation and heavy amortisation can outperform one at 10% with neither. The rental property ROI calculator adds those components for a total-return view.

The other honest caveat is that this metric is only as good as the expense line. Underwriting that omits capital reserves, management fees you will eventually pay someone, or a realistic maintenance allowance will produce a flattering number that the property never delivers. Build the expense figure properly with the net operating income calculator, compare against the simpler rental yield calculator, and for short-term rentals, where the expense structure is entirely different, the Airbnb ROI calculator and the Airbnb ROI guide cover cash-on-cash in that context.

This calculator performs exact arithmetic on the figures you enter, and a rental analysis is only as good as its expense assumptions. The most common failure is not arithmetic but optimism: omitting capital expenditure reserves for the roof and mechanicals, assuming self-management costs nothing, using a vacancy rate below what the local market actually experiences, or underestimating turnover costs between tenants. If your operating expense ratio comes out well under about 35% of effective gross income, something has probably been left out.

It is a single-year, pre-tax snapshot. It does not model appreciation, the equity built by principal repayment, depreciation and the tax shelter it provides, rent growth, expense inflation, or the eventual sale, all of which can dominate total return over a realistic holding period. It also assumes stabilised operations: a property bought vacant, or one being repositioned, will produce a much lower first-year figure than its stabilised one.

Finally, it says nothing about risk, and returns are not comparable across risk levels. A 12% cash-on-cash return on a high-leverage purchase in a soft market is not the same asset as 8% on a low-leverage purchase in a stable one, and the higher number is not automatically the better investment. This is a general educational tool, not investment or tax advice. Model your own numbers, verify expense assumptions against real quotes, and consult a qualified professional before committing capital.

Build the inputs before trusting the output: the Net Operating Income Calculator works through the expense side line by line, and the Rental Yield Calculator gives the simpler gross and net yield view for comparison. For total return including appreciation, amortisation, and tax effects, the Rental Property ROI Calculator goes considerably further than a single-year cash figure. For short-term rentals, where occupancy, cleaning, and platform fees change the expense structure entirely, use the Airbnb ROI Calculator alongside the Airbnb ROI Guide.

On a two-to-four unit property the same chain runs through the Duplex/Multi-Family Investment Calculator, which adds price per unit and an owner-occupied mode. To find the rent at which the property merely covers itself, the Break-Even Rent Calculator solves for it directly.