Cash on Cash Return Calculator
The yearly cash a rental property returns on the cash you put in, after the mortgage and running costs, with cap rate and net operating income.
A 300,000 property bought with 25% down and 15,000 of closing costs and repairs, renting at 2,400 a month (5% vacancy, 700 a month of expenses) with a 6.5% 30-year mortgage returns $1,894 a year on $90,000 of cash: a cash on cash return of 2.10%.
The words on this page, explained simply
New to this? Here is what each term means, in plain English.
- Cash on cash return
- A rental property's yearly cash flow divided by the cash you invested.
- Cap rate
- Net operating income divided by the property's price, ignoring the mortgage.
- Net operating income
- Rent after vacancy minus running costs, before the mortgage.
Cash on cash return is the yearly cash a property puts in your pocket divided by the cash you put in. Unlike cap rate, it counts the mortgage, so it shows what borrowing does to your return.
The formulas
Net operating income (NOI) = rent × 12 × (1 − vacancy) − yearly operating expenses. Cash flow = NOI − yearly mortgage payments. Cash invested = down payment + closing costs + upfront repairs. Cash on cash return = cash flow ÷ cash invested. Cap rate = NOI ÷ purchase price.
In the example: NOI $18,960, mortgage $17,066 a year ($1,422 a month), cash flow $1,894, cap rate 6.32%.
What it leaves out
Cash on cash is a first-year, pre-tax measure. It ignores the mortgage principal you repay (which builds equity), price growth and tax. For the full return over the holding period, use the IRR of all the cash flows including the sale.
Key takeaways
- Cash on cash = yearly cash flow ÷ cash invested.
- Cap rate = NOI ÷ price, ignoring the mortgage.
- Leverage raises cash on cash when the cap rate beats the mortgage rate.
- Use IRR for the whole holding period.
Frequently asked questions
How do you calculate cash on cash return?
Divide the property's yearly pre-tax cash flow (rent after vacancy, minus expenses and mortgage payments) by the total cash you invested (down payment, closing costs and repairs).
What is a good cash on cash return?
Many investors look for 8-12%, but it depends on the market, risk and how much price growth you expect.
What is the difference between cash on cash return and cap rate?
Cap rate ignores financing: NOI ÷ price. Cash on cash includes the mortgage and divides by your own cash only.