Cash-on-cash return calculator
By Jude Wallis
Cash-on-cash return is annual cash flow divided by the cash invested to buy the property. $1,960 of cash flow on $80,000 invested is 2.45 percent.
Cash-on-cash return
2.45%
$1,960.00 of cash flow on $80,000.00 invested.
- Annual cash flow
- $1,960.00
- Cash invested
- $80,000.00
- Cash-on-cash return
- 2.4500%
Cash left after operating costs and debt service, for one year.
The equity cheque: down payment plus cash closing costs, minus credits.
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On this page
The formula
is cash left after operating costs and debt service for one year. is the equity cheque: down payment plus cash closing costs, minus credits.
A cash yield on the equity cheque
The identity is a quotient. is leftover cash for the year. is the cash the buyer actually put in.
On $1,960 of cash flow and $80,000 of cash invested, the return is 2.45 percent. How cash-on-cash return works is the explainer. How rental cash flow works is where that $1,960 came from.
A smaller cheque, a larger percent
Keep cash flow at $1,960 and cut cash invested to $60,000. The quotient is 3.2667 percent. The property did not throw off more cash. The buyer put in less cash, usually by borrowing more.
That is why the percent can rise while risk rises. More debt can lift the result and also lift the chance that cash flow turns negative. How leverage ratio works is the balance-sheet view of that debt.
Not a cap rate, and not an IRR
Cap rate uses net operating income over purchase price. It does not know the loan. The cap rate calculator is that neighbour.
Internal rate of return uses the full cash-flow path, including sale. Cash-on-cash is one year's leftover over the cash that went in. How NPV and IRR work is the full-path object.
Cash flow is the numerator. If that numerator is negative, cash-on-cash is negative, which means the equity cheque is being fed, not paid.
What this page is not doing
It does not build the cash-flow sheet, inventory closing costs, or tax the leftover.
Treat the output as divided by from the two inputs you typed. This is educational material, not financial advice.
Worked examples
\$1,960 on \$80,000
Annual cash flow is $1,960. Cash invested is $80,000. What is cash-on-cash return?
- Divide leftover cash by the equity cheque: .
- As a percent, that is 2.45 percent.
Cash-on-cash return is 2.45 percent on $1,960 of cash flow and $80,000 invested.
The same cash flow on \$60,000
Annual cash flow is still $1,960. Cash invested is $60,000. What is cash-on-cash return?
- Divide: .
- As a percent, that is 3.2667 percent after rounding.
Cash-on-cash return is 3.2667 percent on the same $1,960 of cash flow and $60,000 invested.
Putting purchase price in the denominator
Purchase price is the cap-rate denominator. Cash-on-cash wants the equity cheque. Using price when the buyer borrowed most of the money understates the cash yield and mixes two identities.
If you have NOI and price, use the cap rate calculator. If you have leftover cash and cash invested, stay here.
Common questions
Does a higher cash-on-cash return mean a better property?
It means more cash this year per dollar of cash invested. It does not price vacancy, capital spending, rate resets, or the sale.
Is cash-on-cash the same as cap rate?
No. Cap rate is NOI over price. Cash-on-cash is leftover cash over cash invested. A cheap loan can move one and leave the other still.
What if cash flow is negative?
Then the percent is negative. The owner fed the property that year instead of taking cash out.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.