Cash on Cash Return Calculator

Deposit, closing costs and rehab are all cash that left your account

A 25% deposit on $250,000 is $62,500. Add $6,000 of closing costs and $4,000 of rehab and the cash actually invested is $72,500. Annual cash flow of $3,778 against that is a 5.21% cash-on-cash return.

Using the purchase price as the denominator would give 1.51% and describe a different investment entirely. Cash-on-cash exists precisely to measure the money that left your account, which is why closing costs and rehab belong in it — they are as real as the deposit and are routinely left out of back-of-envelope returns.

The same building returns differently depending on how much you borrowed

Cap rate ignores financing; cash-on-cash is defined by it. Raising the deposit to 40% lowers the mortgage payment and raises monthly cash flow, but the cash invested rises faster, so cash-on-cash usually falls. Paying cash removes the mortgage entirely and cash-on-cash converges on the cap rate.

The direction depends on whether the property yields more than the debt costs. When the cap rate exceeds the mortgage rate, borrowing more raises cash-on-cash; when it does not, borrowing more lowers it and can turn cash flow negative. At a 6.5% rate and a cap rate near 7%, the margin here is thin, which is exactly when the calculation is worth doing carefully.

Rent grows, the payment does not, and the return improves every year

On a fixed-rate mortgage the payment never changes while rent typically rises with inflation. The page computes this directly: the default deal returns 5.21% in year one and 8.33% in year five, with rent and operating costs both growing 3% a year against a payment that does not move. Nothing else changed — the mortgage simply stopped keeping pace.

A 60% improvement over four years is the case for buying a marginal deal and waiting. It is also why cash-on-cash should not be compared against a stock market return directly — one is a first-year yield on a leveraged asset with a growing income stream, the other is a total return. The honest comparison adds principal paydown and appreciation, neither of which appears here.

Equity built, appreciation, tax, and the capital you will spend later

Each mortgage payment retires principal, which is equity you own rather than money spent — early in a 30-year loan that is modest but real, and it is invisible in a cash-flow measure. Appreciation is outside it entirely, as is the tax treatment, where depreciation deductions can change the after-tax picture substantially.

On the other side, capital expenditure is not in the monthly operating figure. Roofs, boilers and appliances fail on a schedule nobody controls, and a property returning 5.21% before a $12,000 roof returns considerably less in the year it needs one. Setting aside a capital reserve inside the operating expense line gives a truer figure.

Sources & References

Figures on this page are checked against primary, authoritative sources. Links open in a new tab.

• Cap rates, explained (net operating income divided by value)JPMorgan Chase · verified 2026-06-04

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