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Rental property ROI calculator
Cash-on-cash return and cash flow
How do you calculate ROI on a rental property?
The usual measure is cash-on-cash return: annual pre-tax cash flow divided by the cash you actually invested, times 100. Cash flow is net operating income minus debt service; cash invested is your down payment plus closing costs plus any rehab. Both figures are returned by the calculator below.
Cash-on-cash return = annual cash flow ÷ cash invested × 100 · Annual cash flow = NOI − annual debt service · Cash invested = down payment + closing costs + rehab
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What is cash-on-cash return, and how is it calculated?
Cash-on-cash return is annual pre-tax cash flow divided by the cash you actually put into the deal, expressed as a percentage. It answers the question an investor with limited capital actually has: what does this specific use of my money return this year?
The numerator is net operating income minus debt service. NOI is gross rent less a vacancy allowance less operating expenses; debt service is the full year of principal-and-interest payments. The denominator is every dollar you brought to the table — down payment, closing costs and any rehab needed before the property could be rented.
Leaving closing costs and rehab out of the denominator is the most common way this figure gets inflated. A deal that returns 8 percent on the down payment alone may return closer to 6 percent once the money it actually took to acquire and stabilise the property is counted.
| Cash-on-cash return | annual cash flow ÷ cash invested × 100 Pre-tax, year one, financing included. |
|---|---|
| Annual cash flow | NOI − annual debt service Debt service means principal and interest, not taxes and insurance. |
| Cash invested | down payment + closing costs + upfront rehab Every dollar out of pocket, not just the down payment. |
| Net operating income | gross rent − vacancy allowance − operating expenses Excludes the mortgage, depreciation and income tax. |
Why is principal paydown shown separately?
Every mortgage payment splits into interest and principal. Interest is a cost — money that leaves and does not come back. Principal is a transfer: it moves cash out of your account and into your equity in the building.
That creates a genuine ambiguity, and this calculator resolves it by showing both figures rather than picking one. Cash flow subtracts the full payment, because the full payment really does leave your account. Principal paid appears as its own line, because that portion came back to you as equity.
Adding the two together gives a fuller picture of year-one return than cash-on-cash alone. A deal with modest cash flow and substantial principal paydown may be building wealth faster than one with stronger cash flow on an interest-only loan — but only the first figure is money you can spend.
Appreciation stays out on purpose. Any assumed rate of price growth compounds over a holding period until it dominates every measured number on this page. Model it if you want to — but do it explicitly and label it an assumption, so you can always see which part of the result is measured and which part is hoped for.
| Cash-on-cash return | Spendable cash only Subtracts the whole mortgage payment, including the principal portion. |
|---|---|
| Principal paid | Equity gained, not cash in hand Real return, but not available to spend until you sell or refinance. |
| Appreciation | Not included Any growth rate would be an assumption, and assumptions compound. |
| Tax effects | Not included Depreciation and your marginal rate depend on you, not the property. |
Cap rate or cash-on-cash — which should you use?
They answer different questions, and using the wrong one is how deals get misjudged. Cap rate ignores financing entirely, which is exactly what makes it useful for comparing properties: the building performs the same regardless of who buys it or how.
Cash-on-cash return includes financing, which makes it useless for comparing buildings but essential for evaluating your deal. Two investors buying the same property at the same price will see the same cap rate and quite different cash-on-cash returns.
The practical sequence is to screen with cap rate and decide with cash-on-cash. A property can show an attractive cap rate and still bleed cash every month once a mortgage at current rates is applied — that is not a contradiction, it is the two metrics doing their separate jobs.
| Includes financing | Cap rate: no · Cash-on-cash: yes |
|---|---|
| Comparable between buyers | Cap rate: yes · Cash-on-cash: no Cash-on-cash changes with down payment and rate, so it is personal to you. |
| Best used for | Cap rate: screening and valuation · Cash-on-cash: deciding |
| Both exclude | Income tax, depreciation, appreciation |
Rental property ROI — frequently asked questions
How do you calculate ROI on a rental property?
The standard measure is cash-on-cash return: divide annual pre-tax cash flow by the total cash invested and multiply by 100. Annual cash flow is net operating income less a full year of mortgage payments; cash invested is the down payment plus closing costs plus any upfront rehab.
What counts as cash invested?
Every dollar out of pocket to acquire and stabilise the property: the down payment, closing costs such as lender fees, title, escrow and transfer taxes, and any rehab needed before the property could be rented. Counting only the down payment overstates the return.
Should the mortgage payment include taxes and insurance?
No. Enter principal and interest only. Property taxes and insurance belong in operating expenses, and entering them in both places subtracts them twice, which understates cash flow and the return.
Does cash-on-cash return include principal paydown?
No. Cash flow subtracts the entire mortgage payment, including the principal portion, because the full payment leaves your account. The principal repaid is shown as a separate line, because it comes back to you as equity rather than as spendable cash.
What is the difference between cap rate and cash-on-cash return?
Cap rate measures the unleveraged return of the property and ignores financing, which makes it comparable between buyers. Cash-on-cash return includes debt service and measures the return on your own money, which makes it personal to your deal. Screen with cap rate, decide with cash-on-cash.
Does the calculator include appreciation?
No, and deliberately so. Any assumed rate of price growth is a guess, and a guess compounded over a holding period would dominate every other figure on the page. Model appreciation separately and label it as an assumption.
Does the calculator include taxes?
No. Depreciation and your marginal tax rate depend on your circumstances rather than on the property, so the calculator shows the pre-tax picture for year one. That keeps different properties comparable with one another.
Is negative cash flow always a bad deal?
Not automatically, since part of the payment repays principal and builds equity. What matters is whether the monthly shortfall is sustainable through a vacancy or a major repair. Negative cash flow that only works at permanent full occupancy is a risk rather than a strategy.
Keep calculating
One deal fits in a spreadsheet. A portfolio does not.
EchoDestiny Real Estate Intelligence computes cash flow and returns across your entire portfolio, connects them to official market data, and names the source behind every figure.