How to use the cash on cash return calculator
- Choose Work it out from rent to build the yearly cash flow, or I know the yearly total to enter it directly.
- To build it, enter the monthly rent, the vacancy allowance, the monthly operating costs and the monthly loan payment.
- Enter the cash you put in: the down payment, closing costs and repairs or other cash at the start.
- Read the cash on cash return, the yearly and monthly cash flow and the years of cash flow it takes to earn back your cash.
Formula
Net operating income = rent x 12 x (1 - vacancy %) - operating costs x 12
Cash flow = net operating income - loan payments x 12
Cash invested = down payment + closing costs + repairs
Cash on cash return = yearly cash flow / cash invested x 100
Operating costs should leave out the loan payment, which is subtracted separately.
A $2,200 rental with $60,000 invested
Yearly rent is $26,400. With 5% vacancy, $1,320 is lost, leaving $25,080. Operating costs of $650 a month are $7,800, so the net operating income is $17,280. The loan payment of $1,150 a month is $13,800, so cash flow is $3,480 a year, or $290 a month.
With $60,000 invested, the cash on cash return is $3,480 / $60,000 = 5.8%. If you instead know the cash flow is $6,000 a year on $60,000, the return is 10%. Adding $6,000 of closing costs and $4,000 of repairs to the first example lowers it to 4.97%.
What the number tells you
Cash on cash return measures the yearly cash you receive against the cash you paid, which makes it a way to compare a leveraged property with other uses of the same money. It looks at one year and ignores what the loan payment does to your equity.
Because it uses cash flow after the loan, a larger down payment lowers the loan and can raise the monthly cash flow while also increasing the cash invested. Try both to see the trade-off.
Related measures
The cap rate calculator ignores the loan and looks at the property alone. The DSCR calculator shows whether income covers the loan payments, and the rental property calculator builds a full year by year model. The ROI calculator handles a simple return on any investment.
Assumptions and limits
- Vacancy and operating costs are your estimates and stay the same for the whole year.
- The loan payment is principal and interest only, as you enter it.
- Appreciation, loan principal paid down, depreciation, taxes and selling costs are not included.
- Cash invested is all cash paid at the start. This is not investment advice.
Frequently asked questions
How do I calculate cash on cash return?
Divide the yearly cash flow after loan payments by the cash you invested. A $6,000 cash flow on $60,000 is 10%.
What is the difference between cash on cash return and cap rate?
Cap rate uses income before the loan and compares it with the property value. Cash on cash uses cash flow after the loan and compares it with the cash you put in.
What counts as cash invested?
Everything you pay out of pocket at the start, which usually means the down payment, closing costs and any repairs or reserves you fund up front.
Can the return be negative?
Yes. If rent after vacancy does not cover operating costs and the loan, cash flow is negative and so is the return.