Cash-on-Cash Return Calculator for Rental Property

How to use the cash-on-cash return calculator

You’ll need these inputs:

• Purchase price.
• Down payment, in dollars or as a percent of the price.
• Closing costs, plus any repairs you paid before renting. Both count as cash invested.
• Loan rate and term, usually 30 years on a rental.
• Monthly rent.
• Vacancy %, the share of the year you expect the unit to sit empty. 5% is about 18 days a year.
• Monthly operating expenses: property tax, insurance, repairs, capital expense reserve, management, and any utilities you pay. No mortgage here.

The calculator returns monthly cash flow, net operating income (NOI) and cash-on-cash return.

The formulas

• Effective rent = monthly rent x 12 x (1 - vacancy %)
• NOI = effective rent - annual operating expenses
• Annual cash flow = NOI - annual mortgage payments (principal and interest)
• Cash-on-cash return = annual pre-tax cash flow / total cash invested

NOI excludes debt service and depreciation. Cash flow subtracts the mortgage. That’s the whole difference between the two.

A worked example

A single-family rental for $250,000:

• Down payment: 25%, or $62,500
• Closing costs: $7,500
• Total cash invested: $70,000
• Loan: $187,500 at 7% for 30 years, so principal and interest is $1,247.44 a month, or $14,969 a year
• Rent: $2,100, vacancy 5%
• Operating expenses: $700 a month, or $8,400 a year

The math:

• Effective rent: $2,100 x 12 x 0.95 = $23,940
• NOI: $23,940 - $8,400 = $15,540
• Annual cash flow: $15,540 - $14,969 = $571, about $48 a month
• Cash-on-cash: $571 / $70,000 = 0.8%

That’s thin. The property earns a reasonable NOI, but almost all of it goes to the lender.

What a good cash-on-cash result looks like

For a small landlord with one or a few doors, a good result is one where cash flow survives a bad month. A $48 monthly margin doesn’t. One repair call puts you behind for the year.

Things that move this number, in order of impact:

• Price. Buying at $230,000 instead of $250,000 cuts the loan and the cash needed.
• Rate. At 6%, the payment on the same loan falls by about $123 a month.
• Rent. Check your rent against comparable listings; an extra $100 a month adds $1,140 a year at 5% vacancy.
• Down payment. More down raises cash flow but also raises cash invested, so the percentage may not improve much.

Pick a minimum return before you shop and treat it as a filter.

Limits and caveats

• Pre-tax only. Depreciation and interest deductions often mean a rental shows a tax loss even when it has positive cash flow. Your after-tax return depends on your bracket and on passive activity loss rules.
• Year one only. Rents and expenses change. The result is a snapshot, not a forecast.
• Expenses are the weak spot. Most bad deals come from an expense line that was too low. If you’ve owned rentals before, use your own history. If not, total each line separately rather than using a percentage rule of thumb.
• No appreciation or principal paydown. Those belong in a total-return calculation.