Cash-on-cash return calculator
Cap rate prices the building. Cash-on-cash prices your decision: this much cash left your account, this much comes back in a year.
Pre-filled with a 20% down purchase of the example unit. Cash invested means everything that left your account.
Cash-on-cash return, first year
2.42%
- Cash invested
- $78,700.00
- Annual cash flow
- $1,908.00
- Cash-on-cash return
- 2.42%
- Principal paid down in year one
- $2,940.00
- Return including principal
- 6.16%
- Years to recover the cash
- 41.2
Real, but not spendable until you sell or refinance.
Getting the denominator honest
The most common error is a denominator that only contains the down payment. Closing costs and the pre-tenant rehab are cash that left your account for this property, and they belong in it. Holding costs during the rehab do too — two months of mortgage on an empty unit is money you spent to own it.
- Down payment
- Lender and title fees, transfer taxes, prepaid escrows
- Rehab and make-ready before the first tenant
- Mortgage, tax and insurance carried while the unit was empty
- Anything you financed separately at a different rate — count the cash, not the loan
What a given number is telling you
| First-year cash-on-cash | Reading |
|---|---|
| Below 0% | The unit is subsidised by your job |
| 0–4% | An appreciation bet with a landlord's workload attached |
| 4–8% | Ordinary small-residential territory in most markets |
| Above 8% | Check the reserves are funded before believing it |
Year one flatters
First-year cash-on-cash usually looks best: the rehab is done, nothing has broken, and the tenant is new. Run it again in year three with a real turnover in it.
Leverage cuts both ways in this number
A larger loan shrinks the denominator and the cash flow at the same time. Cash-on-cash rises with leverage right up to the point the payment eats the cash flow, then falls off a cliff. Run it at two down payments before you choose one, and check the result against the cash flow calculator with reserves funded.
Related in the binder
