Cash-on-Cash Return Calculator for Rental Property

Most buy-and-hold investors underwrite to 8%–12% cash-on-cash in year one, with anything above 12% considered strong for a stabilized long-term rental. Short-term and mid-term rentals are usually underwritten higher (12%–20%) because operating volatility and management effort are higher. The right target depends on your market, leverage, and whether you are buying for cash flow or appreciation.

Cash-on-cash return = annual pre-tax cash flow ÷ total cash invested. Annual cash flow is rent minus vacancy, operating expenses, and debt service. Total cash invested is your down payment plus closing costs, plus any rehab or furnishing capital you put in out of pocket.

Cap rate ignores financing — it is NOI ÷ purchase price, so it measures the asset. Cash-on-cash includes your loan payment and only counts the cash you actually put in, so it measures your position in the deal. Two investors can buy the same property at the same cap rate and post very different cash-on-cash returns depending on leverage.

No. Cash-on-cash is a pre-tax cash metric only. Principal paydown, appreciation, and tax benefits such as depreciation are real components of total return, but they are tracked separately — commonly through internal rate of return (IRR) or an equity-multiple analysis.

Leverage magnifies the metric in both directions. A higher loan-to-value reduces the cash you invest, which usually raises cash-on-cash as long as the property still cash-flows after the payment. Interest-only DSCR structures can raise early-year cash-on-cash further, though the loan balance is not amortizing. Any figures shown here are estimates and are not an offer of credit.

Interest-only payments are lower than a fully amortizing payment at the same rate, which increases year-one pre-tax cash flow and therefore cash-on-cash return during the interest-only period. Once the loan converts to amortizing or matures, the payment typically rises and cash-on-cash return falls unless rent has grown to offset it.

For a refinance-based strategy, total cash invested is usually the cash left in the deal after the cash-out refinance closes — purchase price plus rehab plus closing costs, minus the new loan proceeds. A successful BRRRR can post a very high or even infinite cash-on-cash return if most or all capital is returned at refinance.

Raising the vacancy percentage directly lowers effective gross income and therefore annual cash flow, so a property that looks strong at 3% vacancy can post a materially lower cash-on-cash return at a more conservative 7%–8% assumption. Use a vacancy rate grounded in the submarket's actual rental data rather than a generic default.

Cash-on-cash return can go negative when debt service exceeds NOI, meaning the property is cash-flow negative on a monthly basis even though it may still show acceptable cap rate or equity growth potential. This is common with higher-leverage purchases in markets where cap rates sit close to or below prevailing borrowing costs.

Closing costs increase the denominator (total cash invested) without adding to annual cash flow, so higher closing costs mechanically reduce the resulting cash-on-cash percentage even if the property performs identically. This is one reason investors negotiate seller or lender credits on properties where cash-on-cash is a key underwriting metric.

Short-term rentals often target higher cash-on-cash figures, commonly in the mid-teens to 20%-plus range, to compensate for greater income volatility, higher operating costs, and local regulatory risk. Long-term rentals typically underwrite to steadier but lower figures because occupancy and expenses are more predictable year over year.

Paying discount points raises upfront cash invested but can lower the monthly payment enough to increase annual cash flow, so the net effect on cash-on-cash return depends on your expected hold period. A shorter hold generally favors fewer points, while a longer hold can make points pay off through improved annual cash flow.