Cash-on-cash return calculator

Cash-on-cash return: the only rental metric that fits your bank account

Cash-on-cash (CoC) is the simplest, most honest measure of a rental property's yearly yield from an investor's perspective. It answers: "If I put $X into this deal, how many dollars of cash hit my bank account each year after all costs including the mortgage?"

The formula: CoC = annual cash flow / total cash invested. Both numbers need to include everything.

Cash invested — not just the down payment

A common mistake is counting only the down payment as "cash invested." The real number is:

• Down payment
• Closing costs paid out of pocket (not seller-concession)
• Rehab before first tenant moves in
• Any required reserves the lender wants (some DSCR lenders require 6 months PITI in reserves)

On a $350,000 purchase with 20% down, $7,000 of closing, $5,000 of rehab, and $2,000 in reserves, your real cash invested is $84,000 — not $70,000. That 17% gap directly changes the CoC number.

Cash flow — every expense, no shortcuts

Annual cash flow is gross rent minus vacancy minus operating expenses minus debt service. The honest operating-expense list:

• Vacancy — 5% in tight markets, 10%+ in soft markets
• Property tax — check the actual tax bill, not the Zestimate. Reassessment often happens at sale.
• Landlord insurance — DP3 or similar. Higher than homeowner's insurance.
• Maintenance — 5–15% of rent depending on property age
• Capital expenditures reserve — 5–10% for roof, HVAC, water heater replacements
• Property management — 8–10% of rent plus leasing fee (one month's rent per new tenant)
• HOA fees — if applicable
• Owner-paid utilities — water/sewer/trash in some multifamily setups
• Lawn/snow/pest — if not tenant responsibility
• Accountant/bookkeeper — $300–$800 per property per year
• LLC annual fees — if the property is held in an entity

Many spreadsheet pro formas show "net operating income" (NOI) as 30–40% below gross rent. That's close to right for a well-analyzed property. If your projected NOI is only 10–15% below gross rent, you've missed line items.

The 1% rule and why it matters for CoC

The 1% rule says monthly rent should be at least 1% of the purchase price for a rental to produce acceptable cash-on-cash at current interest rates. At 1% exactly, a $300,000 property should rent for $3,000. Below 0.7% — very common in coastal markets — rentals typically cash-flow negative at any reasonable leverage. Above 1.2%, you're usually in a market where appreciation is weak and you need cash flow to carry the investment thesis.

Leverage amplifies both directions

The big leverage lesson: if the cap rate exceeds the financing rate, leverage increases CoC. If the financing rate exceeds the cap rate, leverage decreases CoC.

At a 6% cap rate and 7% interest with 75% leverage, youdestroy your CoC by adding debt. At a 6% cap rate and 4% interest with 75% leverage, the same property produces 10%+ CoC. This is why the 2021–2022 rate run-up hammered rental investors — deals that penciled at 4% mortgages became negative at 7%+.

The cash-on-cash vs IRR framing

CoC is a snapshot — this year's cash return on this year's invested cash. It doesn't capture future rent increases, principal paydown, appreciation, or tax shelter. A property with 4% CoC today might produce an IRR of 15%+ over a 10-year hold once you include all components. If you're only using CoC, you're seeing the operating picture but not the wealth-building picture.

When CoC alone misleads

• New-construction properties often show weak CoC year 1 but strong growth as rents catch up to market.
• Value-add properties have terrible CoC during rehab and lease-up but great CoC once stabilized.
• High-appreciation markets (CA, WA, CO, TX urban cores) can deliver 15%+ total returns on 2% CoC because the land value is appreciating faster than cash flow scales.

Use CoC as one of 3–4 metrics you check. The others: cap rate, debt-service coverage ratio (DSCR), and break-even occupancy. Together they tell you whether the deal cash-flows and how much cushion you have if something goes sideways.