Cash On Cash Return Calculator

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Claudia Herambourg is an aspiring computational linguist with a passion for both words and numbers. She holds a Bachelor’s degree in English Literature and Mathematical Studies from University College Cork, Ireland. She is currently pursuing her Master’s degree in Linguistics at Sorbonne Nouvelle University in Paris, specializing in computational linguistics. In her spare time, you'll probably find her reading a book of Japanese literature that nobody has ever heard of, on a train going nowhere. See full profile

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Welcome to our cash-on-cash return calculator: a useful tool for assessing whether a deal is actually profitable. If you want to evaluate a potential rental property in seconds, this article will walk you through:

What cash-on-cash return is;
What the cash-on-cash return equation is;
How to calculate cash-on-cash return; and
How to use the cash-on-cash return calculator.

💡 If you want to evaluate an all-cash purchase without considering mortgage debt, check out this cap rate calculator.

What is cash-on-cash return?

Cash-on-cash return measures the annual cash profit you earn relative to the total out-of-pocket cash you have invested.

Unlike other metrics that consider the total value of the property or the mortgage debt, the cash-on-cash return ratio focuses strictly on the actual amounts that leave your bank account versus those that return to it.

To get a comprehensive long-term analysis that takes into account tax deductions and property appreciation, use this rental property calculator to run your simulations.

How to calculate cash-on-cash return

Learning how to calculate the cash-on-cash return is simple once you know the basic steps:

First, calculate the net operating income (NOI) by taking your annual rental income, subtracting losses from vacant periods, and then deducting all annual property-related expenses (taxes, insurance, repairs, and maintenance fees).
Then, determine the annual cash flow by subtracting the total amount of your annual mortgage payments (debt service) from your NOI.
Finally, divide your annual cash flow by the total amount of your initial out-of-pocket cash.

The basic cash-on-cash return formula

\!\!\!\!\!\small \begin{align*} \begin{matrix} \text{Cash on} \\ \text{cash return} \end{matrix} =& \left( \frac{\text{Annual cash flow}}{\text{Total cash invested}} \right) \times 100 \end{align*}

To compare your rental profits against other asset classes like stocks, use our ROI calculator.

Example

Suppose you have the following data:

Total cash invested: $50,000;
Annual rental income (after vacancy): $18,000;
Annual expenses: $5,000; and
Annual debt service: $8,000.

First, calculate your NOI:
$18,000 - $5,000 = $13,000
Next, find your annual cash flow:
$13,000 - $8,000 = $5,000
Finally, apply the cash-on-cash return formula:
($5,000 / $50,000) × 100 = 10%

How to use the cash-on-cash return calculator

Follow these quick steps on how to use the cash-on-cash return calculator:

Enter your total cash investment: all out-of-pocket costs, including down payments, closing fees, and repair budgets.
Input your gross annual income: the total annual rent expected at 100% occupancy.
Set the vacancy rate. Enter an estimated percentage (typically 5% to 10%) to account for empty periods.
Add the property expenses: yearly costs for property taxes, insurance, maintenance, and management fees.
Enter your monthly loan payments (enter zero if you don't have a loan on the property).
Once entered, the calculator instantly displays your:
- Cash-on-cash return;
- Net operating income;
- Annual debt service; and
- Annual cash flow.

🙋 Did you know that you can estimate your exact monthly principal and interest payment with our mortgage calculator?

FAQs

What is a good cash-on-cash return?

Although ideal returns vary by market and strategy, most real estate investors typically aim for a cash-on-cash return of 8% to 12%. Higher returns often come with greater risk or higher management fees, while lower returns may be acceptable in markets experiencing strong appreciation.