Cash-on-cash return calculator

What cash-on-cash return measures

Cash-on-cash return answers a blunt question: for every dollar of my own money in this deal, how many dollars of cash does it hand me back each year? Unlike the cap rate, it counts the mortgage, because the mortgage is real money leaving your account. It is the number that tells you whether the deal actually pays you.

The formula is cash-on-cash = annual cash flow ÷ cash invested. Annual cash flow is your net operating income minus your annual debt service - twelve months of principal and interest. Cash invested is the money that actually left your pocket: the down payment plus closing costs and any upfront rehab. The loan itself is not your cash, so it never enters the denominator.

The mortgage payment, worked out

The payment uses the standard amortization formula. For a loan of P at a monthly rate r over n months, the monthly principal and interest is M = P · r · (1 + r)ⁿ ⁄ ((1 + r)ⁿ − 1). The calculator above does this for you from the rate, term, and the loan amount, which is the price minus your down payment.

A worked example that foots

Take that same $300,000 duplex with $21,000 of NOI. You put 25 percent down - $75,000 - and borrow the remaining $225,000 at 7 percent over 30 years. You also spend $10,000 on closing and a little rehab.

So this deal returns about 3.6 percent in cash on your $85,000 in the first year. Notice how different that is from the property's 7.0 percent cap rate - the gap is the cost of the mortgage. Put more down, and the cash-on-cash usually rises because debt service falls, but you've also tied up more cash. Put less down, and the return on a smaller pile of cash can swing hard in either direction.

What's a good cash-on-cash return

Many buy-and-hold investors look for something in the high single digits, but it's a personal bar, not a law. In a low-rate environment the same property throws off more cash and the number looks great; when rates climb, debt service eats the cash flow and the same building can dip toward zero or below. That doesn't automatically make it a bad buy - appreciation, loan paydown, and tax benefits all sit outside this single figure - but a thin or negative cash-on-cash is something to choose on purpose, not stumble into.

The honest caveats

The return is only as good as your NOI estimate and your expense assumptions. Skip the vacancy allowance or underestimate repairs and the cash flow is fiction. It's also a first-year snapshot: rents rise, big repairs land in lumps, and your loan slowly shifts from interest toward principal, so the real number drifts over time. That is why rents.ai computes it from your actual loans and logged transactions and re-runs it as the year unfolds, instead of freezing a pro-forma in a spreadsheet cell.