Cash on cash return calculator: divide annual pre-tax cash flow by total cash invested to gauge rental property return. Editable inputs, free, no signup.
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Worked example: a $200,000 duplex
Say you buy a duplex for $200,000 with a $40,000 down payment (20 percent). Closing costs and immediate repairs add $8,000, and $12,000 of rehab lifts the rent. Total cash invested: $60,000.
The duplex rents for $2,200 per unit, so gross income is $52,800 per year. Vacancy at 5 percent removes $2,640, leaving $50,160. Operating costs (taxes $3,800, insurance $1,600, maintenance $2,400, management $3,010, water $1,350) total $12,160, giving net operating income of $38,000.
The mortgage is $160,000 at 6.5 percent over 30 years, about $12,112 per year in principal and interest. Annual pre-tax cash flow is $38,000 minus $12,112, or $25,888. Cash-on-cash return is $25,888 divided by $60,000, which equals 43.1 percent. That is unusually strong; it works because the rehab raised rent on a leveraged purchase. The same building without the rent lift (gross $1,800 per unit) drops cash flow to roughly $8,300, or about 13.8 percent, showing how sensitive the ratio is to income assumptions.
What the number hides
Cash-on-cash return uses first-year figures only. The $25,888 example above ignores principal paydown of roughly $2,060 in year one and any appreciation, so it understates total return. It also ignores income taxes: depreciation of about $5,800 per year (building value divided by 27.5) shelters part of that cash flow, but the benefit depends on your bracket and whether you plan to sell or exchange.
It also says nothing about effort. A 12 percent return on a self-managed rental where you spend 10 hours a month is worse than 9 percent on a hands-off REIT after you price your time. At $30 per hour, those 120 hours a year are worth $3,600, which on $60,000 invested cuts 6 points off the return.
Watch the denominator too. Sellers often quote cash-on-cash using only the down payment, not closing costs and rehab. On the duplex that inflates the return from 43.1 percent to 64.7 percent. Always ask what number is being divided into cash flow.
