Cash on Cash Return Calculator

Every dollar that left your account to get the property producing: the down payment, lender and title charges at closing, prepaid taxes and insurance, any rehab or make-ready work, and the reserve you set aside before day one. Loan proceeds are not yours and do not count. The single most common way people overstate cash-on-cash is to divide by the down payment alone — on a typical deal, closing costs, work and reserves add another quarter to the denominator and take roughly a fifth off the return.

If the money is committed to the property, yes. A reserve you would not have set aside but for this purchase is capital tied up in the deal exactly like the down payment, and leaving it out makes an under-reserved property look better than a properly reserved one. The counter-argument is that reserves stay liquid and earn something elsewhere, so some investors carry them at a net cost rather than in full. Either convention is defensible as long as you use the same one on every deal you compare.

Because the two have different denominators. Borrowing more raises the payment, so fewer dollars land in your pocket — absolute cash flow falls. But it shrinks the cash you put in faster than it shrinks the cash you get out, as long as the property earns more than the loan costs. The ratio therefore rises while the dollars fall. It is not free: the same leverage magnifies a bad year, and the coverage ratio in the comparison table is the figure that tells you how close the property is to not making a payment.

No, and the gap is usually large. Cash-on-cash counts only the pre-tax cash that arrives during the year. It ignores the principal your tenant is paying down, any appreciation, and every tax effect including depreciation — all of which are real returns you cannot spend yet. It also ignores the exit entirely. A property with a modest cash-on-cash and a rapidly amortising loan can beat one with a higher cash-on-cash over a full hold. For the whole picture across a hold and a sale, use the IRR calculator.

It depends on what else your money could do and on how much risk sits underneath the number. The honest comparison is against the alternative uses of the same dollars at the same risk, not against a benchmark someone posted online. What is more diagnostic than the level is the composition: a return produced by heavy leverage on thin coverage is a different asset from the same return produced with little debt, and only one of them survives a rate reset or two months of vacancy.

Year one is what you will actually experience, and it is usually the worst year — vacancy from a turnover you inherit, a make-ready you underestimated, taxes that reassess at your purchase figure rather than the seller's. A stabilised year is the fairer basis for comparing properties. Run both. If the two are far apart, the deal is really a light value-add and should be judged over a hold rather than by any single-year ratio.