Cash-on-Cash Return Calculator

The return on your money, not the bank's

In the worked example, a property nets $6,000 of cash flow a year and took $50,000 of cash to acquire — a 12% cash-on-cash return, computed by the same tested engine as the calculator above. The arithmetic is a single division: annual pre-tax cash flow ÷ cash invested, stated as a percentage. Notice what the purchase price never enters. With a loan covering the rest of the price, the return is measured against the $50,000 that actually left your pocket, not against the whole building. That is the logic of a levered metric, and it is also why the figure has to be read with care: the mortgage payment is already subtracted inside the numerator, and it is owed whether or not the rent arrives.

Both inputs are themselves the result of other arithmetic. The calculator on this page takes them as entered; the sections below show where each one comes from, which entries move it, what the ratio leaves out, and the misreadings that distort it.

Companion guide: Cash flow and cash-on-cash return walks through the monthly cash-flow build-up and the mortgage payment formula step by step — including the 0% case and a table that sweeps rates and down payments — with its own set of computed examples. This page keeps to the two inputs the calculator above takes, and its examples vary the term and the denominator instead. The other guides are collected under Guides.

How the number is built

Cash-on-cash sits at the end of a chain that the Rental Property Calculator runs in full. Start with the monthly rent and apply the vacancy allowance: effective rent = rent × (1 − vacancy%). Subtract the monthly operating expenses — property tax, insurance, maintenance, management and similar items, never the mortgage principal and interest. Subtract the mortgage payment, which the engine computes with the standard amortized-loan (PMT) formula at monthly compounding. What remains is monthly cash flow; multiplied by twelve it is the annual cash flow this page asks for. On the other side of the division, cash invested is the down payment plus closing costs plus initial rehab. Divide the first by the second.

Worked through on a $220,000 purchase with $44,000 down (20%), a 7% rate over 30 years, $2,200 of monthly rent, a 5% vacancy allowance, $650 of monthly operating expenses, $5,000 of closing costs and $3,000 of initial rehab: the loan is $176,000 and its payment is $1,170.93 a month; effective rent is $2,090.00; monthly cash flow is $269.07, or $3,228.81 a year; cash invested is $52,000; and the cash-on-cash return is 6.21%. Enter that annual cash flow and that cash invested into the calculator above and it returns 6.21% — the same figure, because the two engine functions apply the same definition to the same two numbers, and the build checks that they agree. The same deal's net operating income is $17,280, which prices it at a 7.85% cap rate. Keep that pair in view: it does not move in the sections that follow.

Why each input matters

The numerator: annual cash flow

Annual cash flow carries every assumption upstream of it. Rent sets the ceiling, the vacancy allowance trims it, and operating expenses and the mortgage payment take fixed bites. Because the numerator is a small difference between larger numbers, a modest change to any one of them moves the ratio by more than it appears to. Hold the $220,000 example and change only the vacancy allowance: at 0% the cash-on-cash return is 8.75%, at the 5% entered above it is 6.21%, and at 10% it is 3.67%. Nothing about the property or its financing changed — only how much of the scheduled rent the model expects to collect. The cap rate moves too, from 8.45% to 7.25%, because vacancy sits inside net operating income; it is financing, not vacancy, that cap rate ignores.

The denominator: cash invested

Cash invested is defined as the down payment plus closing costs plus initial rehab, and the definition matters as much as the figures. Leave the last two out and the ratio flatters the deal: $7,200 of annual cash flow measured against a $45,000 down payment alone reads as 16%, but counting $4,000 of closing costs and $6,000 of make-ready work — $55,000 in total — brings it to 13.09%. The cash flow did not change; the honest denominator did. The engine will not divide by nothing: cash invested must be greater than zero, and the message it returns for a zero entry is quoted in the rejections section below.

The full chain shows the same movement from the other side, and shows what a denominator entry leaves alone. Hold the $220,000 worked example and change nothing but the two optional entries that sit in cash invested. With closing costs and rehab both left at zero, cash invested is the $44,000 down payment on its own and the return reads 7.34%. With the $5,000 of closing costs and $3,000 of rehab entered, it is $52,000 and 6.21%. Raise the rehab entry to $15,000 and cash invested becomes $64,000, the return 5.05%. Across the three runs the payment stays $1,170.93, monthly cash flow stays $269.07 and the cap rate stays 7.85%, because none of those figures contains closing costs or rehab. A denominator entry moves cash-on-cash and nothing else; the build checks that the other three figures did not move.

Financing changes cash-on-cash; it does not change cap rate

Cap rate is net operating income divided by property value, and operating expenses exclude principal and interest by convention, so the loan never enters it. Cash-on-cash subtracts the loan payment in its numerator and divides by the cash the loan did not cover. Run the same $220,000 property — identical rent, vacancy, expenses, closing costs and rehab — through several financing entries and the two metrics part company:

• All cash (a down payment equal to the price): no mortgage payment, monthly cash flow of $1,440.00, cash invested of $228,000, and a cash-on-cash return of 7.58%.
• 20% down at 7% over 30 years — the worked example: a $1,170.93 payment, $269.07 of monthly cash flow, $52,000 invested, 6.21%.
• 30% down ($66,000) at 7% over 30 years: a smaller loan carries a $1,024.57 payment, monthly cash flow rises to $415.43, cash invested grows to $74,000, and the return is 6.74%.
• 20% down at an entered 4% over 30 years: the payment falls to $840.25, monthly cash flow rises to $599.75, the same $52,000 is invested, and the return is 13.84%.
• 20% down at 7% over 20 years: the shorter term raises the payment to $1,364.53, monthly cash flow thins to $75.47 on the same $52,000 invested, and the return is 1.74%.
• 20% down at 7% over 10 years: the payment climbs to $2,043.51, monthly cash flow turns negative at -$603.51, and the return is -13.93%.

In every row the cap rate is 7.85%, because net operating income — $17,280 a year — never changed. The table restates the rows side by side.

The pattern is the mechanism of leverage, not a judgment about it. Borrowing shrinks the denominator and adds a payment to the numerator at the same time. The ratio rises when the cash flow given up to the payment is proportionally smaller than the cash the loan saved, and falls when it is larger. In the rows above the 4% entry lifted the return above the all-cash figure; every 7% entry with a loan sat below it, the 30% down payment closer to the all-cash figure than the 20%; and the two shorter terms, which change nothing but the payment, took the ratio down to 1.74% and then under zero — on a property whose own income never moved. Whether leverage helps or hurts is an outcome of the numbers entered, not a property of leverage itself, and nothing on this page says which financing to choose. The calculators report what each entry produces.

What the mortgage payment does to the numerator

Every financing row changes exactly one thing in the numerator: the payment. The engine computes it with the amortized-loan formula — the annual rate divided by twelve, compounded over the term in months — and divides the principal evenly when the rate is zero; the 0% case is worked through in the companion guide. The term is the input that shows the mechanism most plainly, because it changes the payment without changing the loan or the cash invested. On the $176,000 loan at 7%, a 30-year term costs $1,170.93 a month, a 20-year term $1,364.53, and a 10-year term $2,043.51. Cash invested is $52,000 in all three, so the cash-on-cash return follows the payment alone: 6.21%, 1.74% and -13.93%. Note that the full payment is subtracted every month, principal included: this ratio treats the part of each payment that reduces the loan balance as a cost, not as a return. A shorter term retires the loan faster, and on these inputs it reads here as a lower return, not a higher one, because the model has no term for the equity those larger payments build.

When the result is negative

The calculator accepts a negative annual cash flow and reports the ratio without adjustment. A property whose annual cash flow is -$1,800 — it costs that much a year to hold — against $40,000 invested returns -4.5%. A negative figure means that, at the inputs entered, rent after the vacancy allowance does not cover operating expenses plus the mortgage payment. The model contains no appreciation, rent growth or tax term that could offset it, so the number stands on its own; the 10-year row above shows the same condition reached through a financing entry rather than typed directly. What the engine will not accept is a zero or negative denominator.

Where the model stops

Cash-on-cash is a single-year, pre-tax snapshot: it takes one year of cash flow at the entered inputs and assumes nothing about the year after. As the methodology page states, the models on this site do not include income taxes, depreciation deductions, appreciation on rentals, principal paydown as a return component, PMI, financing points, rent growth on investment properties, or market cycles. Each of those is simply absent from this ratio rather than approximated. The whole $1,170.93 payment in the worked example is a cost; no part of it is credited back as equity. The $2,200 rent is the same in month twelve as in month one. The $220,000 price is never revisited. If any of those factors matters to a decision, it has to be assessed outside this tool — the model will not have quietly included it.

Common misreadings

• Operating expenses that include the mortgage. The chain subtracts the payment on its own line. If principal and interest are also folded into operating expenses, the payment is subtracted twice and the result understates the deal. Operating expenses exclude the mortgage by convention — the same convention that keeps cap rate financing-independent.
• A monthly cash flow entered as annual. The first field asks for a yearly figure. $500 typed in on $50,000 invested returns 1%; the $6,000 that twelve such months add up to returns 12%. The gap is exactly a factor of twelve.
• The purchase price used as cash invested. Only in an all-cash purchase does the down payment equal the price, and even then closing costs and rehab belong in the denominator. With a loan, dividing by the price produces a differently defined ratio that is not cash-on-cash.
• Cash-on-cash and cap rate used interchangeably. They answer different questions and only approach each other without a loan — and even then not exactly: the all-cash row shows 7.58% cash-on-cash against a 7.85% cap rate, the difference being the closing costs and rehab that sit in one denominator and not the other.
• Two properties compared on cash-on-cash with different loans attached. The table above shows one property producing six cash-on-cash figures. A difference between two deals' ratios may be a difference in financing rather than in the properties; cap rate isolates the property, and cash-on-cash measures the use of the cash.
• The ratio read as a verdict. It is one year of pre-tax cash flow at the inputs entered, with the omissions listed above. It is a screen for understanding a deal's shape, not an underwriting result.

How to read the output

The result is a percentage of your own cash for one year at the inputs entered — nothing more and nothing less. The informative use of the calculator is repetition: change one entry at a time and watch the ratio respond, the way the vacancy and financing examples above do. An entry that moves the ratio a great deal is an entry the result depends on heavily, and the figure is only as settled as that entry is. To build the two inputs from a full deal, use the Rental Property Calculator; to see the financing-independent half on its own, the Cap Rate Calculator computes net operating income and cap rate from the same rent, vacancy and expense entries.

What the calculator rejects

The engine validates both fields before dividing and returns a message rather than a number when an entry cannot be used. Annual cash flow may be negative; the engine checks only that it is a valid number. Cash invested must be greater than zero and no larger than the tool supports: entering $6,000 of cash flow against $0 invested returns "The cash invested must be greater than 0.", a negative amount returns "The cash invested cannot be negative.", and an amount beyond the size the tool supports returns "The cash invested is larger than this tool supports.". The messages are quoted from the engine at build time, so they match what the form shows.

Frequently asked questions

Not financial advice: a general educational estimate that excludes taxes, appreciation, and loan paydown. Verify any deal with your own due diligence and qualified professionals. Values are processed locally in your browser and never transmitted. See the methodology page.