Cash-on-Cash Return Calculator

How to read this result

The headline figure is annual pre-tax cash flow divided by the cash you put into the deal. With the default inputs — $300,000 purchase, 20% down, $5,000 of rehab, $3,000 a month in rent — the result is 3.17%. Read that as: for every $1,000 of your own money in this property, roughly $31.70 comes back to you in cash over a year, before tax.

The breakdown underneath the number is the part worth reading. It shows the cash invested (down payment, closing costs, rehab), the annual cash flow after debt service and reserves, and the cap rate on the same inputs. If the cash-on-cash figure surprises you, one of those rows will explain why.

What cash-on-cash return measures

Cash-on-cash answers a narrow question: what did my own money earn in cash this year? It is a levered metric, so it only exists once you know the loan.

Cash-on-cash = Annual pre-tax cash flow ÷ Total cash invested × 100
Annual pre-tax cash flow = NOI − annual debt service − capex reserves
Total cash invested = down payment + closing costs + rehab budget

Each of those three lines has a convention behind it, and the conventions are what make two calculators disagree. Net operating income here excludes debt service, capex and income tax. Annual debt service is the monthly payment times twelve. Capex reserves are a percentage of gross potential rent, and they are subtracted from cash flow but not from NOI, matching the lender convention used everywhere else on this site. The full definition is on the methodology page.

Dividing by cash invested rather than by price is the whole point of the metric. Two buyers can pay the same price for the same building and earn different cash-on-cash returns, because one put down 20% and the other put down 40%.

Cash-on-cash versus cap rate

Cap rate and cash-on-cash use the same property and answer different questions. On the default deal the cap rate is 8.02% and the cash-on-cash return is 3.17%. Both are correct.

The gap between 8.02% and 3.17% has two causes. First, the debt service at 7.25% costs more cash each year than the borrowed portion of the property produces. Part of that cost is principal, which is not lost — it becomes equity — but it is cash you cannot spend that year. Second, cash-on-cash is measured against $71,000 of invested cash, which includes $6,000 of closing costs and $5,000 of rehab that do not raise the rent. The cap rate calculator isolates the first question; this page isolates the second.

Two things move the number: the loan and the cash

Because cash-on-cash has financing in both the numerator and the denominator, it reacts to loan terms faster than cap rate does. The table below holds the property constant and changes only the down payment.

On this property the return rises as the loan shrinks, which is the signature of negative leverage: the borrowed money costs more in annual cash than the borrowed portion of the building produces. Reverse the conditions — a lower rate, a higher rent, a cheaper price — and the same table can run the other way, with a small down payment producing the highest cash-on-cash return. The direction is not a rule; it is arithmetic you can check by changing the inputs above.

The rate table below makes the same point from the other side. Again only one field changes.

A 1.25-point move in the rate swings cash-on-cash by more than three percentage points on this deal, and takes it from positive to negative. The property did not change. That sensitivity is why the rate you can actually lock matters more than a small difference in purchase price.

What counts as cash invested

The denominator is every dollar of your own money that goes into the property at acquisition. This calculator uses three components, in the order they appear on a closing statement:

• Down payment. The largest piece in most deals, and the one most people think of first. On a $300,000 purchase at 20% down it is $60,000.
• Closing costs. Lender origination and underwriting, appraisal, title insurance, recording fees, and any discount points paid to buy down the rate. These are real cash that does not become equity, which is why they belong in the denominator rather than being treated as a rounding error.
• Rehab budget. Money spent before the property is stabilised. It is cash out today, and the rent it produces usually arrives after the work is finished, so including it in the denominator is the conservative choice.

Three things deliberately do not count. The loan amount is not your cash. Tenant security deposits are held on the tenant’s behalf and are not an investment. Money placed in escrow at closing for property taxes and insurance is a prepayment of expenses the property would owe anyway, so adding it to cash invested would inflate the denominator and understate the return.

The distinction matters because cash-on-cash is a ratio, and the denominator is where optimistic analysis usually hides. Leaving closing costs out of the calculation raises the return without changing the property. That is also why two investors with identical loans can quote different cash-on-cash returns for the same building: one is dividing by the down payment only, the other by all the cash that left their account.

What cash-on-cash leaves out

A cash-on-cash return is one year of cash, and it deliberately ignores several things that affect what an investor actually ends up with:

• Principal paydown. The mortgage payment includes principal, which reduces the balance and builds equity. It is excluded from cash flow because you cannot spend it, but it is not lost.
• Appreciation and depreciation in value. A property whose value rises 4% a year returns more than its cash flow suggests. This calculator does not forecast value.
• Income tax and depreciation deductions. Tax treatment can turn a modest pre-tax cash flow into a different after-tax result. That is a tax question, not an arithmetic one, and this site does not model it.
• Timing. A capex reserve smooths a roof replacement over many years. In the year the roof is actually replaced, cash out is far larger than the reserve.
• Exit costs. Selling costs, prepayment penalties and the loan balance at sale all sit outside a one-year cash metric.

For the cash question, the rental cash flow calculator shows the same deal as a monthly waterfall, which is usually easier to read when the annual number is small.

Checking the number before you rely on it

Three checks catch most errors. Confirm that the rent is in-place rent, not the rent the seller expects after a renovation. Confirm that property tax reflects the assessment after sale, not the seller’s current bill. Confirm that management and maintenance are included even if you plan to self-manage, because the time has a cost even when no invoice is issued. If the number still looks unusually high, an expense is usually missing.