Cash-on-Cash Return Calculator

Frequently Asked Questions

What is the difference between cash-on-cash return and ROI?

Cash-on-cash return measures only the annual cash income relative to cash invested, ignoring equity buildup and appreciation. Total ROI also captures those, making it more complete but harder to calculate. For year-one screening, cash-on-cash is standard.

Does a negative cash-on-cash return mean I should not buy?

Not necessarily. In high-appreciation markets, investors accept negative cash flow in exchange for strong expected price appreciation. It requires funding the shortfall from other income.

How does a higher down payment affect cash-on-cash?

A higher down payment increases cash invested, which tends to reduce cash-on-cash return even though it reduces the mortgage payment. There is usually an optimal leverage point.

What expenses should I include in NOI?

Property taxes, insurance, management fees, maintenance, vacancy, and utilities you pay. Do not include mortgage principal and interest - that is debt service, subtracted separately.

Is cash-on-cash pre-tax or after-tax?

This calculator shows pre-tax cash-on-cash, which is standard. After-tax returns are often higher because rental depreciation deductions can shelter some or all cash flow from income tax.

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Estimates for informational purposes only.

Important Disclaimer: Estimates for informational purposes only.

This calculator provides estimates for informational purposes only. Results are based on assumptions and may not reflect actual outcomes. Consult qualified professionals in relevant fields before making important decisions based on these results.

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How It Works

Cash-on-cash return (CoC) measures the annual pre-tax cash yield on the actual cash you invested. The formula: CoC = Annual Pre-Tax Cash Flow divided by Total Cash Invested times 100. Annual cash flow equals Net Operating Income (NOI) minus annual mortgage payments. Total cash invested includes your down payment, closing costs, and any upfront rehab - every dollar you put in before the property generates income.

Borrowing amplifies cash-on-cash returns when your cap rate exceeds your mortgage rate - a condition called positive leverage. When mortgage rates exceed the cap rate, each dollar borrowed actually reduces your return. This is why many rental deals produced negative cash-on-cash returns in 2023-2024 as mortgage rates surged past cap rates.

Key Metrics

Cash-on-cash benchmarks:

Below 5%: Weak - comparable to or below what high-yield savings accounts offer without landlord headaches.

5-8%: Decent for a stable, appreciating market with manageable expenses.

8-12%: Strong - typical target range for active rental investors.

12%+: Excellent, but scrutinize assumptions carefully; deals at this level often have hidden risks, deferred maintenance, or are in weaker appreciation markets.

Tips

Always include a vacancy allowance - even one empty month per year equals ~8.3% vacancy, meaningfully reducing effective income.

Budget 5-10% of monthly rent as a capital expenditure reserve for roof, HVAC, appliances, and plumbing replacements.

If using professional property management (8-10% of collected rent), include it in operating expenses before calculating NOI.

Use the cap rate calculator first to evaluate the property unlevered, then use this calculator to see how your specific financing changes returns.

When comparing deals, use the same vacancy and expense assumptions - inconsistent inputs make comparison meaningless.

FAQ

What is the difference between cash-on-cash return and ROI?

Cash-on-cash return measures only the annual cash income relative to cash invested, ignoring equity buildup from loan paydown and appreciation. Total ROI (or IRR) would also capture those, making it a more complete but harder-to-calculate metric. For year-one screening, cash-on-cash is the standard.

Does a negative cash-on-cash return mean I should not buy the property?

Not necessarily. In high-appreciation markets, investors accept negative cash flow in exchange for strong expected price appreciation. This is a strategic choice that depends on your hold period, cash reserves, and confidence in market appreciation. Negative cash flow does require you to fund the shortfall from other income.

How does a higher down payment affect cash-on-cash?

A higher down payment increases cash invested (denominator), which tends to reduce cash-on-cash return even though it reduces the mortgage payment. There is usually an optimal leverage point that maximizes cash-on-cash - too little down means high payments; too much down reduces returns.

What expenses should I include in NOI?

Property taxes, insurance, property management fees, maintenance, utilities you pay, landscaping, and vacancy. Do not include mortgage principal and interest - that is debt service, not an operating expense, and is subtracted separately.

Is cash-on-cash pre-tax or after-tax?

This calculator shows pre-tax cash-on-cash, which is the standard. After-tax returns are higher for most investors because rental real estate generates depreciation deductions that offset taxable income, often sheltering some or all of the cash flow from current income tax.

Cash-on-Cash Return Calculator

Frequently Asked Questions

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