When a real estate investor decides whether a rental deal is worth pursuing, the single most useful number is the cash-on-cash return. It answers a very direct question: of the dollars you actually put into the deal today — your down payment, closing costs, and any initial repairs — what percentage comes back to you as annual pre-tax cash flow? Unlike the cap rate, which ignores financing, the cash-on-cash return shows what you earn on the equity you personally have at risk, which is exactly what you can spend, reinvest, or compare against other opportunities.
This calculator takes your property price, down payment, net operating income (NOI), annual mortgage payment, and closing costs, and instantly returns your cash-on-cash return side by side with the property's cap rate. Because leverage magnifies returns (and losses), seeing both numbers together is the fastest way to tell whether a deal is genuinely good or merely looks good on paper.
How to Use
- Enter the Property Purchase Price — the agreed amount you will pay the seller.
- Set your Down Payment as a percentage of that price. A 20% down payment is the classic investor benchmark because it avoids mortgage insurance and still leaves strong leverage.
- Type your Net Operating Income (NOI) — the annual rental income minus operating expenses such as property tax, insurance, maintenance, property management, and an allowance for vacancy. Do not subtract the mortgage here; NOI is the property's income before any debt service.
- Add your Annual Mortgage Payment — the total yearly principal and interest on the loan. If you are buying all cash, leave this at 0.
- Optionally enter Closing Costs as a percentage of the price (commonly 2%–5%) so the "cash invested" figure reflects everything you hand over at the table, not just the down payment.
The result card breaks down your down payment, closing costs, and total cash invested, then shows your annual cash flow (NOI minus the mortgage), your cash-on-cash return as the highlighted headline figure, and the cap rate for comparison.
The Formula
The cash-on-cash return is a simple ratio:
Cash-on-Cash Return = (Annual NOI − Annual Mortgage Payment) ÷ Total Cash Invested × 100
Where Total Cash Invested is the down payment plus closing costs (and any upfront rehab). Two comparisons matter:
- Cash-on-cash return vs. your mortgage rate. If your cash-on-cash return is comfortably above the interest rate you are paying, leverage is working in your favor.
- Cash-on-cash return vs. cap rate. With no mortgage, these are identical. Once you add leverage, a healthy cash-on-cash return that exceeds the cap rate means the loan is amplifying your yield; a cash-on-cash return below the cap rate means debt service is dragging on your returns.
On the default deal — a $300,000 property, 20% down, $24,000 NOI, no mortgage — the down payment is $60,000, cash invested is $60,000, cash flow is $24,000, and the cash-on-cash return is 40.0%, while the cap rate is 8.0%. That 40% looks dramatic only because the down payment is just one-fifth of the price; add a mortgage and the number moves toward the cap rate.
Why It Matters More Than Cap Rate
The cap rate tells you how well the property performs as if you bought it with cash. That is useful, but almost no rental is bought entirely with cash, and your actual wealth grows on the equity you deployed. Suppose two identical 8% cap-rate properties are available: one in a city where lenders demand 35% down at 7%, and one in a suburb where 20% down at 6% is available. The cap rate is the same, but your cash-on-cash return — and therefore the cash you collect each year — is very different. Cash-on-cash is the metric that reflects your specific financing, your specific down payment, and therefore your specific result.
A common rule of thumb targets a cash-on-cash return of 8%–12% or higher on a stabilized rental, with 15%+ considered strong. That benchmark is not a law, but it gives you a yardstick to compare against stocks, bonds, and other properties.
Examples
Example 1 — The all-cash baseline (the default deal). You buy a $300,000 duplex, put 20% down ($60,000), and the property generates $24,000 of NOI with no loan. Your total cash invested is $60,000 and annual cash flow is $24,000, giving a cash-on-cash return of 40.0% and an 8.0% cap rate. Slide the mortgage payment upward and watch the cash-on-cash return fall toward the cap rate — that is leverage at work.
Example 2 — A leveraged rental with closing costs. A $500,000 triplex requires 25% down, produces $45,000 of NOI, carries a $25,000 annual mortgage, and charges 3% in closing costs. The down payment is $125,000 and closing costs add $15,000, so total cash invested is $140,000. Annual cash flow is $45,000 − $25,000 = $20,000. The cash-on-cash return is 14.3% — comfortably strong — while the cap rate is 9.0%. Because the cash-on-cash return exceeds both the cap rate and the loan rate, leverage is amplifying yield rather than hurting it.
Example 3 — A seven-figure deal. A $2,000,000 apartment building with 25% down, $180,000 NOI, an $80,000 annual mortgage, and 2% closing costs ties up $540,000 of cash and produces $100,000 of annual cash flow, a 18.5% cash-on-cash return against a 9.0% cap rate. Large commercial assets can clear very different hurdles than small houses — run the exact numbers rather than assuming bigger deals behave the same way.
FAQ
What is a good cash-on-cash return?
Most private lenders and experienced investors target a cash-on-cash return of 8%–12% or higher on a stabilized single-family or small multifamily rental. Returns of 15%+ are generally considered strong, while anything below 5% is hard to justify once risk, vacancy, and maintenance are factored in. The right target also depends on your market and loan terms.
How is cash-on-cash return different from cap rate?
The cap rate is NOI divided by the property price, and it assumes you bought the property with all cash. Cash-on-cash return is annual cash flow divided by the cash you actually invested (down payment plus closing costs), after subtracting the mortgage. Cap rate describes the asset; cash-on-cash return describes your specific deal with your financing.
Does cash-on-cash return include appreciation?
No. It measures only the annual cash income you collect relative to your upfront cash, not property appreciation, equity paydown, or tax benefits. Those factors can make a deal even more attractive, but cash-on-cash is deliberately conservative because it counts only the money in your bank account each year.
Should I use NOI or gross rent in this calculator?
Use net operating income — annual rent minus operating expenses such as property tax, insurance, maintenance, management, and vacancy. Do not subtract the mortgage from NOI; the calculator subtracts the mortgage separately to arrive at cash flow. Using gross rent would overstate your return and mislead your decision.
What happens if my mortgage payment is higher than my NOI?
If annual debt service exceeds NOI, the property has negative cash flow. The calculator reports a 0% cash-on-cash return in that case rather than a meaningless negative percentage, and you should treat the deal as needing appreciation or future rent growth to justify it. Positive cash flow is the safety margin that makes rental real estate work.
Why do you add closing costs to the cash invested?
The cash-on-cash return is defined by the dollars you put into the deal. If you pay $10,000 in lender fees, title charges, and inspections at closing, that money is no different from the down payment — it is cash you spent to own the asset. Including it makes the denominator honest and prevents you from overstating your true return.
Disclaimer
This cash-on-cash return calculator is provided for informational purposes only and does not constitute financial, tax, lending, or investment advice. Results are estimates based on the inputs you enter and the standard cash-on-cash formula; actual NOI, vacancy, financing terms, closing costs, and returns vary by property, market, lender, and timing. Appreciation, equity buildup, and tax effects are not included. Always underwrite a deal carefully and consult a qualified real estate, tax, or finance professional before investing.