Cash On Cash Return Calculator

What this calculator does

When you buy a rental property with a mortgage, you do not actually put down the whole price. You put down a slice of it, and that slice is the real money at risk. The cash on cash return asks the question that matters most to that money: for every pound you actually invested, how much cash does the property hand back each year? This calculator works it out from your rent, your other income, your running costs, and your mortgage payment.

What cash on cash return is

Cash on cash return is the annual pre-tax cash flow a property produces divided by the total cash you invested in it, written as a percentage.

The key word is cash, on both sides of the sum. On top is the actual cash left in your pocket each year after every bill, including the mortgage, has been paid. On the bottom is the actual cash you had to put in to get the deal done, typically your down payment and upfront costs, not the full property price. So unlike a cap rate, which pretends you paid all cash, this measures the return on the money you genuinely committed, with the loan fully in the picture.

How it is worked out

The calculator first works out your annual cash flow. It adds up the income the property brings in, your rent plus any other income, and then subtracts what flows out, your operating expenses and your mortgage payments. What is left is the yearly pre-tax cash flow, the money that actually lands in your account.

Then it divides that cash flow by the total cash you invested, and turns it into a percentage. Because income and costs can be quoted either monthly or yearly, each line lets you pick which you mean, and the tool puts everything on an annual footing before it does the sum. That keeps the comparison clean no matter how you happen to have your figures.

A worked example

Say you put 50,000 of your own cash into a property. It rents for 2,000 a month, its operating expenses run 500 a month, and the mortgage payment is 1,000 a month.

Over a year, the rent brings in 24,000. Take out 6,000 of operating expenses and 12,000 of mortgage payments, and you are left with 6,000 of pre-tax cash flow. Divide that by the 50,000 you invested and the cash on cash return is 12%. That is the figure that tells you what your actual money earned: not the property's theoretical yield, but the real cash return on the real cash you put down.

How borrowing changes the number

Here is where cash on cash return gets interesting, and where it parts ways with the cap rate. When you borrow, you control a large asset with a comparatively small amount of your own cash. If the property earns more than the loan costs, that gap works in your favour, and the return on your slice of cash can climb well above the property's plain cap rate. This is positive leverage, and it is a big part of why investors use mortgages rather than paying all cash.

But leverage is a lever, and levers push both ways. If the property underperforms, or the borrowing is expensive, the same mechanism that magnified your gains can magnify the pain, dragging the cash on cash return down below the cap rate, or into the red. So a strong cash on cash number is partly a story about the property and partly a story about the financing behind it. To compare against the unlevered yield, our cap rate calculator shows the property on an all-cash basis, and the mortgage calculator helps you nail down the payment that drives this result.

What the number does and does not count

Cash on cash return is a cash-flow measure, and it is worth being clear about what that means so you read it for what it is. It captures the pre-tax cash that moves in and out each year, which is exactly what you want when you are judging whether a deal pays its way month to month.

It is not trying to be a total return. It does not count the equity you build as the mortgage balance falls, nor any change in the property's value, nor the effect of taxes. Those matter to the full story of an investment, but they are separate questions. Cash on cash return keeps its focus narrow and useful: the real cash yield on your invested cash, this year, before tax.

How to use it

• Total Cash Invested. The cash you actually put in, usually your down payment plus upfront costs.
• Rent Income and Other Income. What the property earns, entered per month or per year as you prefer.
• Operating Expenses. The running costs, per month or per year.
• Mortgage Payments. Your loan payment, per month or per year.

Set each figure to monthly or yearly with the dropdown beside it, press Calculate for your cash on cash return, and Reset to clear the fields.

Questions people ask

What is a good cash on cash return?

It depends on the market, the property, and your goals, so there is no single benchmark. The value of the number is in comparing deals and in checking that a property produces enough cash to justify the money you put in. Judge it against your alternatives rather than a fixed target.

Does cash on cash return include the mortgage?

Yes. Unlike the cap rate, cash on cash return subtracts your mortgage payment as part of the annual cash flow, because it measures the return on the actual cash you invested, with financing included.

Is it before or after tax?

Before tax. Cash on cash return uses pre-tax cash flow, and it does not account for equity built through loan paydown or for changes in the property's value. It is a measure of yearly cash yield, not total return.

References

Cash on cash return as annual pre-tax cash flow divided by invested equity, and its nature as a levered metric that includes financing, follow the real estate return literature summarised by Wall Street Prep and the standard text by Geltner and Miller below.

1. Wall Street Prep. Cap Rate vs. Cash on Cash Return. wallstreetprep.com
2. Geltner, D., et al. Commercial Real Estate Analysis and Investments. Cengage/OnCourse Learning.