Cash-on-Cash Return Calculator

This calculator works out the mortgage payment from the price, down payment, rate and term, subtracts it and your operating expenses from the rent, and divides the year's cash flow by the cash you put in. It also shows the break-even rent — the monthly rent that covers expenses and the loan with nothing left over.

Cash-on-cash is the return measure most rental investors check first because it reflects leverage: the same property can show 2% or 9% depending on the loan. That makes it useful for comparing financing options, and less useful for comparing properties, which is what the cap rate calculator is for.

It counts only the cash that reaches your pocket in a year. Principal paid off on the loan, appreciation and tax effects such as depreciation are all excluded, so a low cash-on-cash return does not always mean a poor investment — but it does tell you how much cushion you have if rent drops or a big repair arrives.

The mortgage payment uses the standard fixed-rate amortization formula, the same as the mortgage payment calculator. Cash-on-cash is a first-year, pre-tax figure. For returns over a full holding period including sale proceeds, use an internal rate of return instead.

A mortgage helps cash-on-cash return when the property's yield before financing is higher than the cost of the loan, and hurts it when the yield is lower. In the first example the property earns about 5.5% before financing while the loan costs 6.75%, so borrowing drags the return down to 1.75%. In the all-cash example, a loan at 7% would also reduce the return because the property's yield is close to 7%.

A quick test: compare the cap rate with the mortgage constant (annual payment ÷ loan amount). If the cap rate is higher, more leverage increases cash-on-cash; if it is lower, a larger down payment improves it.

Most disappointing returns come from understated operating costs. Before trusting the result, check that your monthly expense figure includes:

• Vacancy: one empty month a year is about 8% of rent.
• Repairs and capital reserves: roofs, HVAC systems, water heaters and flooring wear out; many investors reserve a fixed percentage of rent each month.
• Property management: even if you self-manage now, include a fee so the result reflects the property, not your free labor.
• Insurance and tax increases: both can rise after purchase, especially if the sale triggers a tax reassessment.
• Owner-paid utilities and HOA dues.

Total return on a rental has four parts, and cash-on-cash measures only the first.