Cash on Cash Return Calculator

Cash-on-cash return = (net operating income − annual debt service) ÷ (down payment + closing costs) × 100

Net operating income

Rent actually collected after the vacancy allowance, minus operating expenses — 21,360 on the default property, and it is computed before the mortgage, not after

Annual debt service

Every mortgage payment for the year, principal and interest together, as one annual figure

Annual pre-tax cash flow

What is left of the net operating income after the mortgage — the numerator, and it can be negative

Down payment

The cash you hand over at closing to buy the property

Closing costs

The fees and settlement charges paid to acquire the property — part of the cash you invested, even though none of it buys equity

Use it when you are deciding whether to buy a rental, or comparing two of them, and the question you are actually asking is whether the rent covers the mortgage with something left over. It is the right measure for that question because both of its halves are cash: cash collected on top, cash paid in on the bottom. It is the wrong measure for the question of how good an investment the property is overall, because it ignores appreciation and loan amortisation entirely — a property with a 3 percent cash-on-cash return in a market where values rise 5 percent a year may be a far better investment than one returning 8 percent in a flat market, and this page cannot tell you that. Read it as a liquidity and carry test rather than a verdict: a low but positive figure means the property pays for itself and your gain arrives later as equity; a negative figure means you are writing a cheque every month to hold it, and the size of that cheque is the number to argue about. Use it in the first year with caution, since closing costs all land in year one and depress it — the same property looks better on this measure in year two.

1. 2,400 a month, 5% vacancy, 63,000 of cash in — a 3.49% return

   1. Rent collected: 2,400 × 12 = 28,800 a year, less 5% vacancy for 27,360 actually received
   2. Net operating income: 27,360 − 6,000 of operating expenses = 21,360
   3. Pre-tax cash flow: 21,360 − 19,160.76 of mortgage payments = 2,199.24
   4. Cash invested: 60,000 down payment + 3,000 closing costs = 63,000
   5. Cash-on-cash return: 2,199.24 ÷ 63,000 = 3.49 percent

   The two halves of this fraction are the two things worth checking. The top one is thin but positive: 183.27 a month of cash flow on a property you had to put 63,000 into, which is the honest picture of a leveraged rental at these numbers. The bottom one is why the figure is 3.49 and not 3.67 — drop the closing costs and the denominator becomes 60,000, which lifts the return by nearly a fifth of a point. Every property has these costs and they are easy to leave out of a back-of-the-envelope calculation.

2. The same property with no closing costs — 3.67%

   1. The cash flow is untouched — closing costs are a one-off at purchase, not an annual expense
   2. Only the denominator moves: 60,000 of cash invested instead of 63,000
   3. Cash-on-cash return: 2,199.24 ÷ 60,000 = 3.67 percent

   Run both and the 0.18 point gap is what 3,000 of acquisition costs does to this measure in year one. This is also the version a rental calculator that stops at the down payment will report, which is the single most common reason two calculators disagree about the same property. Neither is wrong; they are answering with different denominators, and the one that includes closing costs is the one that matches your bank statement.

3. The same property at 50% vacancy — the return goes negative

   1. Half the year vacant: 28,800 × 50% = 14,400 actually collected
   2. Net operating income: 14,400 − 6,000 = 8,400, which no longer covers the mortgage
   3. Pre-tax cash flow: 8,400 − 19,160.76 = −10,760.76
   4. Cash-on-cash return: −10,760.76 ÷ 63,000 = −17.08 percent

   The mortgage does not care how much rent you collected, which is what makes a leveraged rental fragile: a 45 point move in the vacancy allowance turns a 3.49 percent return into a −17.08 percent one and asks you for 896.73 a month. That sensitivity is why the vacancy allowance deserves to be set from the local market rather than left at whatever default the calculator started with — and why the table below sweeps it in five-point steps.

This is one year's cash-on-cash return and nothing more. It excludes appreciation and it excludes loan amortisation, so it is not a total return on the property and should never be compared directly against one: in the first year of a mortgage most of each payment is interest, and the equity the tenant builds for you is real but invisible here. It is a pre-tax figure — no depreciation, no mortgage-interest deduction, no income tax on the rent — so it is not what you keep. It assumes the whole year's mortgage payments are one annual figure you supply rather than deriving them from a loan, so it does not know about an adjustable rate, a balloon, or an escrow shortage, and it will not catch a payment schedule that changes mid-year. Operating expenses are a single number: a real property has a roof, a water heater, a property manager and a turnover, and the vacancy allowance is a stand-in for the turnover cost rather than a measurement of it. It assumes no capital expenditure at all. Closing costs are treated as cash invested on day one and never recovered, which is right for this measure and wrong for an internal rate of return, where they would be netted against the sale proceeds. Nothing here models a sale, so it says nothing about capital gains or the costs of getting out. And no currency is attached to any figure, so the return is unit-free while the cash flow it is built from is in whatever currency you entered.

What is cash-on-cash return?

It is the annual pre-tax cash flow a property produces divided by the cash you invested to buy it. Both halves are cash: rent collected after operating expenses and mortgage payments on top, your down payment plus closing costs on the bottom. The default property — 2,400 a month in rent, 5 percent vacancy, 6,000 of operating expenses, 19,160.76 of annual mortgage payments, 60,000 down and 3,000 of closing costs — collects 27,360, nets 21,360, keeps 2,199.24 of cash flow, and returns 3.49 percent on 63,000.

How do I calculate cash-on-cash return on a rental property?

Four steps. Multiply the monthly rent by twelve and subtract the vacancy allowance to get rent collected. Subtract operating expenses to get net operating income. Subtract the annual mortgage payments to get pre-tax cash flow. Divide that by the down payment plus closing costs. On the default numbers: 28,800 less 5 percent is 27,360; less 6,000 is 21,360; less 19,160.76 is 2,199.24; and 2,199.24 ÷ 63,000 is 3.49 percent.

Does cash-on-cash return include closing costs?

It should, and this page does. Closing costs are cash you paid to acquire the property, so they belong in the denominator, and leaving them out overstates the return. On the default property, including the 3,000 lifts the cash invested from 60,000 to 63,000 and drops the return from 3.67 percent to 3.49 percent. A calculator that stops at the down payment is not wrong so much as answering a slightly different question — but the version with closing costs is the one that matches what left your bank account.

What is a good cash-on-cash return?

It depends on what else the money could do, and on the market you are buying in, so there is no universal threshold. The useful comparison is against your financing cost and against a passive alternative: a return below the mortgage rate you are paying means the leverage is working against you on a cash basis, and a return near what a bond pays means you are taking landlord risk for a bond return. Treat a low positive figure as a carry test rather than a verdict — the property is paying for itself and the rest of your gain is arriving as equity and appreciation. Anything negative means you are funding the property monthly.

Is cash-on-cash return the same as ROI?

No, and the difference is in both halves of the fraction. Return on investment usually divides a total gain — cash flow plus appreciation plus principal paid down — by the total cost of the property, financing included. Cash-on-cash return divides only this year's cash flow by only the cash you put in. So cash-on-cash is smaller in the numerator and smaller in the denominator, and the two can point in opposite directions: a property can show a strong ROI on appreciation while returning 2 percent cash-on-cash and costing you money to hold every month.

Why did my return go negative when the rent still covers the mortgage?

Because the vacancy allowance comes out before the mortgage and the mortgage does not shrink when the rent does. The default property has 21,360 of net operating income against 19,160.76 of debt service, a margin of only 2,199.24 — so a vacancy allowance of about 42 percent wipes it out and every point beyond that comes straight out of your pocket. At 50 percent vacancy the cash flow is −10,760.76 and the return is −17.08 percent. Leverage magnifies this in both directions, which is why the vacancy number matters more than any other input here.

Does cash-on-cash return change from year to year?

Yes, on both sides. The numerator moves with rent, vacancy and expenses, and it usually rises as the mortgage payment stays flat while rents grow. The denominator only moves if you invest more cash, but its composition shifts: closing costs land entirely in year one, which is why year one is the worst year for this measure on an otherwise unchanged property. The same property at 3.49 percent with 3,000 of closing costs returns 3.67 percent from year two onwards if nothing else changes — and that is the figure to compare against other properties only if those are also past their first year.

• Publication 527, Residential Rental Property — what counts as rental income and which expenses are deductible against it, including the vacancy period — Internal Revenue Service (United States)
• Publication 946, How To Depreciate Property (2025 edition) — depreciation is a deduction rather than cash, which is why a cash-on-cash return leaves it out of the numerator — Internal Revenue Service (United States)
• Publication 551, Basis of Assets — settlement costs and points are part of what you paid to acquire the property — Internal Revenue Service (United States)