Cash on Cash Return Calculator for Rental Property

The cash-on-cash return formula

Cash-on-cash return = annual pre-tax cash flow ÷ total cash invested. It answers one question: for every dollar that left your bank account to buy this rental, how many cents come back each year?

Annual cash flow is collected rent minus operating expenses minus the mortgage payment (principal and interest). Total cash invested is everything you paid out of pocket: down payment, closing costs, and any repairs you made before the first tenant moved in. Loan money is not cash invested. That is why cash-on-cash is the metric that shows leverage, and cap rate is the one that ignores it.

Worked example: a $300,000 single-family rental

You put 25 percent down ($75,000), pay $9,000 in closing costs and $6,000 for paint and flooring. Total cash invested: $90,000. The $225,000 loan at 7 percent for 30 years costs $1,496.93 a month, or $17,963 a year.

Rent is $2,600 a month. After 5 percent vacancy you collect $29,640. Expenses: property tax $3,600, insurance $1,500, management at 8 percent of collected rent $2,371, and maintenance plus CapEx at 10 percent of rent $3,120. Total $10,591. NOI is $19,049, a 6.35 percent cap rate.

Cash flow = $19,049 − $17,963 = $1,086 a year, about $90 a month. Cash-on-cash = $1,086 ÷ $90,000 = 1.21 percent. A high-yield savings account beats that with zero tenants.

Now change one input at a time. Rent at $2,800 instead of $2,600: 3.27 percent. A 6 percent rate instead of 7: 3.18 percent. Put 40 percent down: 3.47 percent, but on $135,000 of cash. Buy it all-cash and the return is 6.05 percent on $315,000. When the cap rate (6.35 percent) is below the mortgage rate (7 percent), more debt lowers your return. That is negative leverage, and the calculator makes it obvious in seconds.

What is a good cash-on-cash return?

Most single-family investors look for 8 to 12 percent. Anything under 5 percent means you are mostly betting on appreciation and principal paydown. Over 15 percent usually means one of three things: a heavily discounted purchase, a lower-cost market with more tenant risk, or an expense estimate that is too optimistic.

Compare the number with what your cash could earn elsewhere with less work. If a Treasury bill pays 4 percent, a rental needs to clear it by a wide margin to pay for vacancies, 2 a.m. calls, and the fact that you cannot sell a house in a day.

What cash-on-cash leaves out

It is a year-one, pre-tax number. It does not count principal paydown (about $2,286 in year one on the loan above), appreciation, or depreciation, which lets you deduct the building value over 27.5 years and often makes rental income nearly tax-free on paper. Total return including those can be far higher than cash-on-cash. But paydown and appreciation do not pay the water heater bill. Cash flow does.

It also does not handle a refinance. If you pull cash out later, your cash invested drops and the return can jump. The BRRRR calculator handles that case.

Common mistakes

Leaving closing costs and rehab out of cash invested. They are real cash, and skipping them overstates the return by 10 to 20 percent.

Using 0 percent vacancy and no management. Budget at least 5 percent vacancy and 8 to 10 percent management even if you self-manage today.

Forgetting CapEx. A $12,000 roof every 20 years is $600 a year. Maintenance plus CapEx of 10 percent of rent is a reasonable starting point for an older house.

Using interest only. Your lender will collect principal and interest every month, so the payment in the cash-flow math has to be the full P&I.