Cash on Cash Return Calculator
Work out a rental's cash flow and cash on cash return from price, financing, rent and costs.
Cash on cash return calculator
What cash on cash return measures
Cash on cash return is the yearly pre-tax cash flow a rental puts in your pocket divided by the cash you actually put in. It's the return on your money after the mortgage, which is why investors using leverage watch it more closely than the cap rate.
Cash on cash return = (NOI − annual debt service) ÷ (down payment + closing costs + upfront repairs)
- NOI is rent after vacancy minus operating costs: property tax, insurance, repairs, management, HOA and utilities you pay. It leaves out mortgage payments and depreciation.
- Debt service is 12 months of principal and interest.
- Principal paydown, appreciation and tax savings aren't in it; it measures cash flow only.
Worked example
A $300,000 rental bought with 25% down, $9,000 of closing costs and $6,000 of repairs ties up $90,000. At $2,600 rent with 5% vacancy and $900 a month of costs, NOI is $18,840. A $225,000 loan at 7% for 30 years costs $17,963 a year, leaving $877 of cash flow: a cash on cash return of 0.97%. The cap rate on the same deal is 6.28%; when the mortgage rate is above the cap rate, leverage lowers your cash return.
After tax
Rental income is taxed after deducting mortgage interest, operating costs and depreciation of the building over 27.5 years (IRS Publication 527), so many rentals with positive cash flow show little taxable income. Run the rental property depreciation calculator for the deduction, and check lender limits with the DSCR loan calculator.
Common questions
What is a good cash on cash return?
It depends on your goals and market; compare it with what the same cash would earn elsewhere.
How do you calculate cash on cash return?
Yearly pre-tax cash flow divided by the total cash you put in.
Is cash on cash return the same as cap rate?
No, cap rate ignores financing; cash on cash return is after mortgage payments.
Sources
More mortgage and home calculators: California Homestead Exemption Calculator · Closing Cost Calculator
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Related
- Cap rate calculator
- DSCR loan calculator
- Rental property depreciation calculator
- Mortgage payment calculator
General information, not financial, tax or legal advice. Check important numbers with the official source before acting on them.