Cash-on-Cash Return Calculator

What is cash-on-cash return?

Cash-on-cash return is the annual pre-tax cash flow a property produces divided by the total cash you put into it, and it is the figure SealedFolio's calculator on this page returns. One question, one number: for every dollar of your own money in this deal, how many cents come back this year? Some investors and lenders call it cash-on-cash ROI. Same formula, same result.

What makes cash-on-cash return different from every other headline metric is that it counts your loan. Cap rate deliberately ignores financing so two buyers can compare the same building. Cash-on-cash does the opposite. It measures your position, with your down payment and your mortgage payment, which is why two people can buy the identical property on the same day and post very different returns. On a financed deal it is usually the most honest read on whether the money is working.

Cash-on-cash return formula

Both halves of the cash-on-cash return formula trip people up, and SealedFolio's calculator splits them into separate input groups for exactly that reason. Be precise about them.

• Annual pre-tax cash flow is effective rental income minus operating expenses minus debt service. Effective income is gross rent and other income reduced by vacancy. Debt service is the entire mortgage payment, principal included, because principal still leaves your bank account.
• Total cash invested is the down payment plus closing costs and loan fees plus any repairs done before the property was earning. It is not the purchase price, unless you bought with cash. Financed the rehab? Only the part you paid out of pocket counts.

How to calculate cash-on-cash return

Calculating cash-on-cash return by hand takes four steps, and SealedFolio's calculator above follows the same four in the same order, so you can check it against your own arithmetic.

1. Total your cash invested. Down payment, closing costs and loan fees, upfront repairs. Everything that left your account to get the property rented.
2. Find effective monthly income. Rent plus parking, storage, laundry, and pet fees, then cut it by your vacancy rate.
3. Subtract operating expenses and the mortgage. Taxes, insurance, repairs, management, HOA, and any utilities you cover, then the full loan payment. That leaves monthly cash flow.
4. Annualize and divide. Multiply monthly cash flow by 12, divide by cash invested, multiply by 100.

A worked cash-on-cash return example

This is the example loaded into SealedFolio's calculator by default, so you can change one field at a time and watch what moves. A single-family rental at $350,000. You put down 20 percent, so $70,000, and pay $9,000 in closing costs and loan fees. The place is rent-ready, so no upfront repairs. Total cash invested: $79,000.

It rents for $2,500 a month. Budget 5 percent for vacancy and effective income is $2,375. Operating expenses run $700 a month across taxes, insurance, a repair reserve, and management. The mortgage is $1,200. That leaves $475 a month, or $5,700 a year.

$5,700 divided by $79,000 is 7.2 percent.

Now change one thing. Say the property needs $12,000 of work before anyone moves in. Cash invested becomes $91,000, cash flow is unchanged, and the return drops to 6.3 percent. That is the whole reason rehab belongs in the denominator: the cash is just as gone as the down payment, and a calculator that ignores it will hand you a number a full point too high.

How NOI, cash flow, and cash-on-cash return fit together

Cash-on-cash return starts one step past net operating income, and confusing the two is the usual reason a hand-built spreadsheet disagrees with SealedFolio's calculator. NOI stops before the loan. Cash flow keeps going. Here is the same $350,000 rental, walked down line by line.

Two metrics come out of that one column. NOI of $20,100 against the $350,000 price is a 5.7 percent cap rate. Cash flow of $5,700 against $79,000 of cash invested is a 7.2 percent cash-on-cash return. The gap between 5.7 and 7.2 is the loan doing its job, and it is also the extra risk you took on to get there, because $14,400 of that debt service is due whether or not a tenant is in place. Run the cap rate calculator on the top half and this page on the bottom half.

The cash-on-cash return formula in Excel or Google Sheets

If you would rather keep cash-on-cash return in a spreadsheet than on a web page, the whole thing is four formulas. SealedFolio's calculator uses this exact sequence, so a sheet built this way will agree with it to the decimal. Put the labels in column A and the values in column B.

With those inputs B16 reads 7.2 percent. Enter the vacancy rate as a decimal, not as the number 5, or the sheet will multiply your income by negative four. The place a spreadsheet quietly breaks is B12: paste in an interest-only figure or a payment that already excludes principal and the return will look a point or two better than it is. One copy of this sheet per property is workable. Once you are past three or four, the copies drift out of sync, which is the problem SealedFolio was built to solve.

How to use this calculator

SealedFolio's cash-on-cash return calculator groups its inputs the way you should think about a deal.

• Cash invested sets the denominator. Down payment, closing costs and loan fees, upfront rehab.
• Income sets the top line. Rent, other income, and the vacancy rate that keeps you honest.
• Monthly costs take it back down. Operating expenses first, then the full mortgage payment.

Buying all cash? Put the purchase price in the down payment field and set the mortgage to 0. Run it both ways on the same property and you will see the trade clearly: borrowing shrinks the cash flow but shrinks your invested cash faster, which is usually why the financed version wins on this particular metric and carries more risk while doing it.

Worked example: cash-on-cash return financed versus all cash

Comparing the financed and all-cash versions of one property is the fastest way to see what cash-on-cash return actually measures, and SealedFolio's calculator will run both in about thirty seconds. Same $350,000 house, same $2,500 rent, same $700 of monthly operating expenses. The only change is how it was paid for. The all-cash column drops the $1,200 mortgage payment and uses $5,000 of closing costs instead of $9,000, since the loan fees go away with the loan.

Paying cash produces 3.5 times the annual cash flow, but it takes 4.5 times the money to do it, which is why the return falls to 5.7 percent. Notice where that all-cash figure lands: 5.7 percent, the same as the cap rate from the NOI table above. With no debt in the deal, cash-on-cash return and cap rate converge, and that is a useful sanity check on your own numbers. The last row is the part the percentages hide. The financed version owes $14,400 a year no matter what the property does. Four vacant months leaves $20,000 of collected rent against $8,400 of expenses, so the all-cash version still banks $11,600 while the financed version goes $2,800 in the hole.

How to read your cash-on-cash return result

A cash-on-cash return percentage on its own means very little, whether it came from SealedFolio's calculator or anywhere else. What it is being compared against is the whole game.

• Negative. The property takes money from you every month. Sometimes deliberate on an appreciation play or a heavy value-add, but know that you are choosing it.
• Under 4 percent. Thin enough that one vacant month or one water heater erases the year. Check whether the expense line is realistic before you go further.
• 4 to 8 percent. Common for lower-risk properties in expensive markets. Fine if the appreciation case is real and you have reserves.
• 8 to 12 percent. The band most buy-and-hold investors aim at. Worth double-checking the repair and vacancy assumptions that produced it.
• Above 12 percent. Usually means more risk, more hands-on work, or an expense number that is too low. Sometimes it is a genuinely good deal. Verify before you celebrate.

One more comparison people skip: what your cash would do if you left it alone. Cash-on-cash exists to be measured against alternatives, not against zero.

What is a good cash-on-cash return?

The cash-on-cash return number you will hear everywhere is 8 to 12 percent. It is a rule of thumb that gets repeated because it is memorable, not because it was measured. Anyone quoting it without asking about your market, your loan terms, or the condition of the building has skipped the part that matters.

A more useful way to set the bar is to build it from your own situation. Start with what the cash earns doing nothing. Add something for illiquidity, since you cannot sell a duplex on a Tuesday afternoon. Add something for the work, because tenants call. Add something for the risk that your expense estimates are optimistic. Whatever that totals is your floor, and it will not match anyone else's.

Then remember what the number leaves out. A 6 percent cash-on-cash return in a market with real rent growth, where the tenant is paying down your loan every month, can beat a 12 percent return on a property in a market with no rent growth that needs a new roof in year three. Cash-on-cash is one input. Use the rental ROI calculator for the rest of the story.

Is a 7 percent cash-on-cash return good?

A 7 percent cash-on-cash return is a normal, workable result for a financed single-family rental, and whether it is good depends entirely on the assumptions underneath it. The worked example on this page lands at 7.2 percent, and it gets there while already carrying a 5 percent vacancy allowance and a real repair and management line. Delete the vacancy allowance and the same deal prints 9.1 percent without one thing about the property changing. A 7 percent return built on honest expenses beats a 9 percent return built on optimistic ones.

Is an 11 percent cash-on-cash return good?

An 11 percent cash-on-cash return sits at the top of the 8 to 12 percent band most buy-and-hold investors quote, and it usually comes from one of three places: a cheaper market that carries more risk, a property you work harder, or an expense line that is too thin. On the $79,000 of cash invested in the example on this page, 11 percent means $8,690 a year, or $724 a month of cash flow, which is $249 a month more than the base case produces. Find which line item created that $249 before you treat the 11 percent as real.

What is a good target cash-on-cash return for a rental home?

Most buy-and-hold investors name 8 to 12 percent as the target for a single-family rental home, and that range is a starting point rather than a standard. A better target is one you build yourself: start with what your cash earns sitting somewhere safe, add for the fact that you cannot sell a rental house on a Tuesday afternoon, add for the hours the property will take, then add for the odds your expense estimates are optimistic. If that totals 9 percent for you, a 7 percent deal is a pass even though another investor with a different cost of capital would take it.

Cash-on-cash return vs cap rate

Cash-on-cash return and cap rate get confused constantly, and the difference is one line: cap rate ignores your mortgage, cash-on-cash return does not.

Practical version: run cap rate to see whether the property is priced sensibly for its market, then run cash-on-cash to see whether your version of the deal actually pays. A building can carry a healthy cap rate and still return almost nothing on your cash if the loan is expensive. The cap rate calculator handles the first half.

Cash-on-cash return vs ROI

Cash-on-cash return, which is why some investors call it cash-on-cash ROI, counts one thing: spendable cash this year, against cash invested. Total ROI counts four: that same cash flow, plus principal paydown, plus appreciation, plus tax benefits, usually across a multi-year hold.

So ROI is always the bigger number, and it should be, because most of what makes rental property work does not show up in the checking account in year one. It is also the softer number. Appreciation is a guess, rent growth is a guess, and your exit year is a guess. Cash-on-cash return has almost nothing to assume, which is exactly why it belongs in the first pass on a deal and ROI belongs in the second. SealedFolio's rental ROI calculator runs the fuller version, the depreciation calculator covers the tax piece neither return figure includes, and once the property is filed the Schedule E calculator shows why a rental with a healthy cash-on-cash return can still report a loss to the IRS.

When cash-on-cash return is the right metric, and when it is not

Reach for cash-on-cash return, and for SealedFolio's calculator above, when:

• You are buying with a mortgage and want to know what your down payment earns.
• You are choosing between two deals with different financing.
• You need to compare a property against a completely different use of the same cash.
• You care about cash flow now, because you are living on it or reinvesting it.

Put it down when:

• The play is appreciation. Cash-on-cash will always make those deals look bad, because it is blind to the thing you are buying.
• It is a heavy value-add. Year-one cash flow on a property mid-renovation says nothing about year three.
• You are comparing properties as assets rather than as investments. That is cap rate's job.
• You are judging a long hold. Principal paydown compounds quietly and cash-on-cash never sees it.

Common cash-on-cash return mistakes

Seven errors account for almost every wrong cash-on-cash return, and SealedFolio's calculator is laid out to make the first four hard to make by accident.

• Using the purchase price as cash invested. On a financed deal the denominator is your money only. Using the price understates the return badly.
• Leaving out closing costs and rehab. The most common way to inflate the number. In the example above, $12,000 of work moved the return nearly a full point.
• Subtracting only mortgage interest. Principal is a cash outflow. It builds equity, but it is not cash you can spend, so it belongs in the calculation.
• Assuming full occupancy. Twelve months of rent with no vacancy allowance is a forecast, not a plan.
• Forgetting capital reserves. A property with no line item for the roof, the HVAC, and turnover costs will post a strong return right up until the bill arrives.
• Using the seller's numbers. A pro forma is a marketing document. Rebuild income from actual leases and expenses from actual bills, or from the rental income calculator and the cash flow calculator.
• Comparing across financing structures. A 12 percent return on a five-year balloon and an 8 percent return on a 30-year fixed are not the same bet.

Buying your first property and unsure which of these apply? The first rental property guide walks through the whole sequence. If you are selling and rolling the proceeds forward, the 1031 exchange calculator shows what deferring the tax does to the cash you have available for the next deal.

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More SealedFolio calculators for a cash-on-cash return analysis

Cash-on-cash return is one figure in a deal. These SealedFolio tools cover the lines around it, and all of them are in the free calculator library.