Cash-on-Cash Return Calculator
Cash-on-Cash Return Calculator
The yearly cash a rental property puts in your pocket, after running costs and loan payments, as a percentage of the cash you put in to buy it — with the cap rate alongside for comparison.
Cash-on-cash return
A $60,00,000 flat bought with $12,00,000 down, $4,20,000 of buying costs and $1,00,000 of repairs; $2,16,000 rent and $40,000 of costs a year; the rest borrowed at 8.5% for 20 years
Cash-on-cash return
- Rent
- a year’s rent actually collected, after empty months
- Operating costs
- the owner’s running costs: maintenance, society charges, property tax, insurance, letting fees
- Loan payments
- a year of EMIs — interest and principal — on the price less the down payment, at the loan rate ÷ 12
- Cap rate
- (Rent − Operating costs) ÷ Price: the same income before any loan, on the whole price
Worked example
A $60,00,000 flat bought with $12,00,000 down, $4,20,000 of buying costs and $1,00,000 of repairs; $2,16,000 rent and $40,000 of costs a year; the rest borrowed at 8.5% for 20 years
Cash invested = 12,00,000 + 4,20,000 + 1,00,000 = $17,20,000
Net operating income = 2,16,000 − 40,000 = $1,76,000
EMI on 48,00,000 at 8.5% for 20 years = $41,656; a year = $4,99,866
Cash flow = 1,76,000 − 4,99,866 = −$3,23,866
Cash−on−cash = −3,23,866 ÷ 17,20,000 × 100 = −18.83%
Cap rate = 1,76,000 ÷ 60,00,000 = 2.93%
The example flat with a bigger down payment (8.5% loan over 20 years on the rest)
| Down payment | Cash invested | Loan payments a year | Cash flow a year | Cash-on-cash |
|---|---|---|---|---|
| 20% | $17,20,000 | $4,99,866 | −$3,23,866 | −18.83% |
| 40% | $29,20,000 | $3,74,900 | −$1,98,900 | −6.81% |
| 60% | $41,20,000 | $2,49,933 | −$73,933 | −1.79% |
| 80% | $53,20,000 | $1,24,967 | $51,033 | 0.96% |
| 100% | $65,20,000 | $0 | $1,76,000 | 2.70% |
What the cash you put in earns — and why a loan can cut it
Cash−on−cash return answers a plain question: for every rupee, dirham or dollar you took out of your own pocket to buy a rental property, how much comes back in cash each year? It divides the year’s cash flow before tax — rent collected, less the owner’s running costs, less the loan payments — by the cash you put in: the down payment, the buying costs and any repairs before the first tenant. It is a standard measure in real estate investing because it is the return on your own money, not on the bank’s.
The example is a typical Indian city flat. The rent less costs is $1,76,000 a year, a cap rate of 2.93% on the price. The loan of $48,00,000 costs $4,99,866 a year in EMIs, so the owner puts in $3,23,866 a year on top of the rent, and the cash−on−cash return is −18.83%. That is not a mistake in the calculator: when the property’s income yield is below the loan’s rate, borrowing makes the cash return worse, not better. Bought outright, the same flat returns 2.70% on the cash. The test for a loan is its loan constant — a year’s EMIs as a percentage of the loan, 10.41% on an 8.5% loan over 20 years, higher than the rate because every EMI also repays principal. Borrowing lifts the cash-on-cash return only when the cap rate is above the loan constant: at a 12% cap rate the same loan would give 12.80%.
Cash-on-cash is deliberately narrow. It counts the whole EMI as money out, although part of it repays the loan and builds your equity. It ignores any rise or fall in the property’s value, which in low-yield markets is most of what an investor hopes for, and it is before income tax on the rent, whose rules differ by country. It is a first-year figure: rents, costs and a floating loan rate all change. For the property’s own yield before any loan, use the rental yield calculator; to weigh owning against renting, the rent vs buy calculator; for a return that includes the sale price, the ROI calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How do I calculate cash-on-cash return?
Divide the year’s pre−tax cash flow (rent less operating costs less loan payments) by the cash you invested (down payment, buying costs, repairs), times 100. The example gives −18.83%.
What is the difference between cash-on-cash return and cap rate?
The cap rate is the property’s net operating income divided by its price, before any loan. Cash-on-cash is the cash flow after loan payments divided by your own cash. With no loan and no buying costs they are the same.
Why is my cash-on-cash return negative?
Because the rent less costs does not cover the loan payments. That happens whenever the property’s yield is well below the loan’s interest rate, as it often is for residential property in India.
Does cash-on-cash return include property price growth?
No. It measures only the cash the property pays you each year. Price growth, and the loan principal you repay, are left out.
Related calculators
References
- Gallinelli F. What Every Real Estate Investor Needs to Know About Cash Flow … and 36 Other Key Financial Measures. McGraw-Hill. Cash-on-cash return: the annual cash flow before taxes divided by the initial cash invested.
- Geltner DM, Miller NG, Clayton J, Eichholtz P. Commercial Real Estate Analysis and Investments. OnCourse Learning. Net operating income (rent collected less operating expenses, before loan payments), before-tax cash flow after debt service, and the capitalisation rate, NOI ÷ property value.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. Present and future values, annuities; the level-payment loan formula.