Cap rate tells you what the property earns. Cash-on-cash tells you what you earn on your own money after a mortgage. If you put $100,000 down and the property generates $25,000 in annual profit after debt service, you have a 25% cash-on-cash return on your initial investment.
How it works
Cash flow is revenue minus all costs, including mortgage payments. Divide that by your down payment and closing costs. That fraction is your return on the cash you actually put in, expressed as a percentage.
Why this matters more than cap rate for your decision
A 4% cap rate on a $500,000 property generates $20,000 a year. Put $100,000 down and finance the rest, and the mortgage payment might eat up $18,000 of that, leaving you $2,000 in cash flow. Your cash-on-cash return is only 2%, even though the cap rate looked moderate. Knowing your actual cash return changes everything about whether the deal makes sense.
What this does not include
This calculator measures your annual cash return only. It does not account for property appreciation, tax depreciation (which can shelter other income), or the principal you’re paying down each year with your mortgage payment—all of which add real returns you don’t touch as cash.
How to use this calculator
- Enter your annual cash flow: gross rent minus all expenses, including mortgage payments.
- Enter your total cash invested: down payment plus closing costs and any repairs before rent.
- The result is your return on cash, a percentage you can compare against other investments or other properties.
Frequently asked questions
What’s a good cash-on-cash return?
Real estate is illiquid—you cannot quickly exit if circumstances change. Most investors target 8–12% cash-on-cash to justify that illiquidity and the work involved. At 5% or less, you’re betting on appreciation to make it worthwhile.
Can cash-on-cash return be negative?
Yes. If your mortgage and expenses exceed your rent, you pay out of pocket each month. That’s negative cash flow. Many newer investors accept it temporarily, betting on appreciation to make up the difference later—but it is real money out of your pocket every month, so be honest about how long you can sustain it.
Should I include vacancy?
Absolutely. If you typically have a tenant vacancy of one month per year, your “potential” rent is not what you actually collect. Use actual or expected net rent—the rent you will actually receive after vacancy, broken leases, and write-offs.
