Cash-on-Cash Return Calculator

Annual pre-tax cash flow divided by the cash you actually invested. Cash flow is the NOI less the debt service; the investment is the down payment plus closing costs and any capital you funded at purchase. It answers one narrow question well — what is this deal paying me this year on the money I put in — and it deliberately ignores the sale, the loan paydown and the time value of money.

Take the annual NOI, subtract the annual debt service, and divide the result by the total cash invested. On a $4,200,000 purchase at 30% down with $95,000 of closing costs, the equity is $1,355,000. If the NOI is $273,000 and the debt service is $243,754, the cash flow is $29,246 — a 2.16% cash-on-cash return.

Yes, and leaving them out is the most common way this figure gets flattered. The denominator is the money that left your account, and closing costs left your account. Using the down payment alone always produces a higher number, which is why you will sometimes see it done — but it is not the return you experienced.

It depends on the rate environment more than on the asset, which is why a fixed benchmark ages badly. Stabilized deals have historically been underwritten in the 6% to 10% range, but that assumed a cost of debt comfortably below the cap rate. When borrowing costs more than the property yields, perfectly sound deals produce low single-digit cash-on-cash returns in year one and make their money on the loan paydown and the exit instead. The more useful test is the one below: is the leverage adding to the return or subtracting from it?

Compare the cash-on-cash return to the cap rate. Above it is positive leverage — the borrowed money is earning more than it costs, and borrowing more improves the return. Below it is negative leverage: the loan constant exceeds the cap rate, the debt is dragging the return down, and borrowing more makes it worse. That is the opposite of the usual instinct, and it is the single most useful thing this calculation tells you.

Annual debt service divided by the loan amount, as a percent — what the debt costs each year including principal, not just interest. It is the number to compare against the cap rate, and it is always higher than the interest rate because it includes amortization. A 6.75% loan over 25 years has a constant near 8.3%, which is why a 6.5% cap deal at that rate is underwater on leverage even though the rate itself looks lower than the cap.

Because it measures one year and ignores everything else. It does not count the principal you pay down each month, which is real equity being built. It does not count the sale, which is usually where most of the money is. And it does not account for timing. A deal with a modest cash-on-cash and a strong exit can comfortably beat one with the reverse. Read it alongside IRR and equity multiple rather than instead of them.