Cash on Cash Return Calculator for Rental Property
Cash on cash return answers a financing question: how much pre-tax cash does a rental pay each year compared with the cash you put in? Enter the purchase, loan, rent and operating costs below.
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Formula
Loan = price × (1 − down payment ÷ 100)Cash invested = price × down payment ÷ 100 + closing costsAnnual cash flow = (monthly rent − monthly expenses − mortgage payment) × 12Cash on cash return = annual cash flow ÷ cash invested × 100
The mortgage payment is the standard fixed-rate amortizing payment, rounded to the cent.
Worked example
Price 300,000, 20% down, 6,000 closing costs, 6.5% rate over 30 years, rent 2,400 and operating expenses 600 a month.
- Loan: 240,000, so the payment is 1,516.96 a month.
- Cash invested: 60,000 + 6,000 = 66,000.
- Annual cash flow: (2,400 − 600) × 12 − 1,516.96 × 12 = 21,600 − 18,203.52 = 3,396.48.
- Cash on cash return: 3,396.48 ÷ 66,000 = 5.15%.
Operating expenses should cover taxes, insurance, maintenance, vacancy and management but not the mortgage. Income tax is not included.
When to use it
Use this page after you have a loan quote and want to know what your own cash earns. Use the cap rate calculator to compare the properties themselves without financing, and the rental property cash flow calculator when you want vacancy, management and repairs entered as separate lines.
Second example
A 250,000 property, 25% down (62,500) and 5,000 of closing costs, a 7% loan over 30 years, rent 2,000 and expenses 500 a month.
- Payment on 187,500: 1,247.44 a month.
- Annual cash flow: (2,000 - 500 - 1,247.44) × 12 = 3,030.72.
- Cash invested: 62,500 + 5,000 = 67,500, so the return is 4.49%.
Common mistakes
- Counting the loan as cash invested; only your own money counts.
- Leaving vacancy, repairs and management out of expenses.
- Ignoring early repairs you pay for in cash.
- Expecting the figure to include appreciation, loan paydown or tax effects.
Frequently asked questions
What is cash on cash return?
It is the pre-tax cash flow you receive in a year divided by the cash you actually invested. If you invest 66,000 and the property leaves you 3,396.48 a year, the return is 3,396.48 ÷ 66,000 = 5.15%.
What counts as cash invested?
Your down payment plus closing costs, and any upfront repairs you pay for. On a 300,000 purchase with 20% down and 6,000 of closing costs, you invest 60,000 + 6,000 = 66,000. The loan itself is not counted.
How is annual cash flow calculated here?
Monthly rent minus monthly operating expenses, minus the mortgage payment, times 12. With 2,400 rent, 600 of expenses and a 1,516.96 payment, the yearly cash flow is (2,400 − 600 − 1,516.96) × 12 = 3,396.48.
How is cash on cash return different from cap rate?
Cap rate divides income by the full price and ignores financing. Cash on cash return divides cash flow after the mortgage by only the cash you put in, so borrowing can raise or lower it. Tax, appreciation and loan paydown are not included.
What is a good cash on cash return?
Investors often want a return above what they could earn on safer investments, but the right target depends on risk, market and plans for appreciation. Use it to compare deals with the same assumptions rather than against a fixed number.
How do I calculate cash on cash return in Excel?
Use =annual cash flow/cash invested. For a 250,000 property with 25% down, 5,000 of closing costs, a 7% loan, 2,000 rent and 500 of expenses, cash invested is 67,500 and cash flow is 3,030.72, so =3030.72/67500 gives 4.49%.
Does more leverage raise cash on cash return?
Not always. With 100% cash on the 300,000 default property the return is 21,600 ÷ 306,000 = 7.06%, but with 10% down and a 6.5% loan it falls to 3.11% because the mortgage takes most of the rent. Borrowing helps only when the property earns more than the loan costs.