How to calculate cash-on-cash return
Cash-on-cash return measures what the cash you put into a rental earns in a year. It only counts money that actually moves: the rent that comes in, and every bill and mortgage payment that goes out.
Cash-on-cash return = annual cash flow ÷ total cash invested
Annual cash flow is a year of rent collected, after vacancy, minus operating costs (property tax, insurance, maintenance, HOA or condo fees, management) and minus the full mortgage payment. Total cash invested is everything you paid to get the property rented: the down payment, closing costs and any repairs before the first tenant.
A worked example
Take a $350,000 rental bought with 25% down at 6.75%, renting for $2,750 a month:
- Rent collected after 5% vacancy: $31,350
- Operating costs: −$9,400
- Mortgage payments: −$20,431
- Annual cash flow: +$1,519
The cash invested is the $87,500 down payment plus $10,500 of closing costs, $98,000 in all. +$1,519 ÷ $98,000 gives a cash-on-cash return of 1.6%.
How the down payment changes it
The same property can have a very different cash-on-cash return depending on how much you borrow. Here is the example with different down payments, everything else the same:
| Down payment | Cash invested | Cash flow / mo | Cash-on-cash |
|---|---|---|---|
| 20% down | $80,500 | +$13 | 0.2% |
| 25% down | $98,000 | +$127 | 1.6% |
| 35% down | $133,000 | +$354 | 3.2% |
| 50% down | $185,500 | +$694 | 4.5% |
| All cash | $360,500 | +$1,829 | 6.1% |
Borrowing raises cash-on-cash return only when the property earns more on its price than the loan costs each year. Here the property earns 6.3% of its price (the cap rate), while the mortgage payments cost 7.8% of the loan each year, so every dollar borrowed pulls the return down, and paying more in cash raises it.
What is a good cash-on-cash return?
There’s no universal number. The useful comparison is with what the same cash could earn elsewhere: a savings account, paying down your own mortgage, or an index fund. Figures of 8% to 12% are often quoted, but in expensive markets at today’s mortgage rates few properties bought with a normal down payment reach them. Owners in those markets accept a low or even negative cash-on-cash return because most of their return comes from paydown and growth in value.
A high cash-on-cash return isn’t automatically good either. It can mean a large loan and little room for a vacancy or a big repair, or a property in an area where values don’t grow.
Cash-on-cash return vs cap rate, ROI and IRR
- Cap rate is NOI divided by the price, as if bought with cash. It compares properties, not financing. Example: 6.3%.
- Cash-on-cash return is cash flow divided by the cash you put in. It shows what your cash earns with your financing. Example: 1.6%.
- ROI adds the mortgage principal paid off and the change in value to cash flow, over the same cash. Example: 15.1% in year one.
- IRR is the yearly return over the whole hold, counting when every dollar goes in and comes out, sale included. Example: 11.4% a year over 10 years.
It changes every year
Cash-on-cash return is usually quoted for year one, but it doesn’t stay there. Rent tends to rise while a fixed-rate mortgage payment stays the same, so cash flow grows. In the example, cash-on-cash return goes from 1.6% in year one to 4.4% in year 5 and 8.4% in year 10, on the same cash invested. The year-by-year table in the results shows it for every year.
What cash-on-cash return leaves out
It ignores the equity the property builds: mortgage principal paid off and growth in value. It ignores tax, and it ignores time, so it can’t tell you whether a hold of five years beats one of fifteen. Use it to check that a property pays its way, then look at ROI and IRR for the whole picture. The rental property calculator leads with cash flow and IRR, and the Canadian version uses Canadian mortgage maths.
After you buy: track it from day one
Every number in this calculator is a forecast. Once you own the property, the real ones start arriving: the rent that actually came in, the repair you didn’t plan for, the tax bill that went up. Owners who write these down as they happen always know their real cash flow and equity. Owners who don’t end up rebuilding a year from bank statements at tax time, and rarely know which property is pulling its weight.
The simplest system is three habits:
- Run the numbers before you buy, as you did here.
- Track it from day one: rent, bills, repairs and the mortgage, as they happen.
- Review it every year against the plan: cash flow, equity and return on equity.
It works the same for one property or ten, and it’s far easier to start with the first than to catch up at the fifth. A spreadsheet can do it. EquityRise does it for you, with the same maths as this calculator.
Frequently asked questions
What is cash-on-cash return?
Cash-on-cash return is one year of cash flow from a rental divided by the cash you put in to buy it. It answers a simple question: what is the cash I invested earning each year, before mortgage paydown, growth in value and tax?
How do you calculate cash-on-cash return?
Take a year of rent collected, subtract every operating cost and the full mortgage payment to get the annual cash flow, then divide by the total cash invested: down payment, closing costs and any repairs before the property is rented. For example, $6,000 of cash flow on $60,000 put in is a 10% cash-on-cash return.
What is a good cash-on-cash return on a rental property?
There is no single answer. Compare it with what the same cash could earn elsewhere, such as a savings account, paying down your own mortgage or an index fund. Figures of 8% to 12% are often quoted, but in expensive markets at today’s rates few properties bought with a normal down payment reach them, and owners there rely more on paydown and growth.
Is cash-on-cash return the same as ROI?
No. Cash-on-cash return counts only the cash that reaches your pocket. ROI, as this calculator shows it, adds the mortgage principal your rent paid off and the change in the property’s value, so it is usually higher than cash-on-cash return.
What is the difference between cash-on-cash return and cap rate?
Cap rate is net operating income divided by the price, as if you paid all cash, so it compares properties on their own merits. Cash-on-cash return subtracts the mortgage payment and divides by the cash you actually put in, so it shows how your financing changes the return.
Does cash-on-cash return include mortgage principal?
The whole mortgage payment, interest and principal, is subtracted from cash flow, because it all leaves your bank account. The principal isn’t lost, though: it becomes equity. That’s why cash-on-cash return understates the full return, and why this calculator also shows ROI and IRR.
Can cash-on-cash return be negative?
Yes. If the rent doesn’t cover every cost and the mortgage, cash flow is negative and so is the cash-on-cash return. Many rentals in expensive cities start that way and turn positive as rents rise while the mortgage payment stays the same.
What is the cash-on-cash return if I pay all cash?
With no mortgage, cash flow equals net operating income, so cash-on-cash return is close to the cap rate. It comes out a little lower, because the cash you put in includes closing costs and any repairs as well as the price.