About this calculator
Cash-on-cash return is the annual pre-tax cash flow divided by the cash invested. It tells you what return you’re getting on the money actually out of your pocket — down payment, closing costs, initial repairs. Unlike cap rate (which is unlevered), cash-on-cash includes the impact of leverage.
Why leverage changes everything
A 6% cap rate property purchased with 100% cash returns 6% cash-on-cash. The same property at 20% down and 7% mortgage might return 9–12% cash-on-cash — leverage amplifies returns when the property’s return exceeds the borrowing rate. But leverage cuts both ways: at 5% cap rates and 7% mortgages, cash-on-cash can go negative.
The 1% rule, briefly
Monthly rent ≥ 1% of purchase price. A $200k property renting for $2,000+ passes the rule and typically produces positive cash flow with 20–25% down at modern rates. The 1% rule fails in nearly all major US metros today — coastal cities sit around 0.4–0.6%. It works in Midwest and Sun Belt secondary markets.
Realistic cash-on-cash targets
- 6–8% — Realistic for Class A/B in stable markets at current rates.
- 8–12% — Aspirational, requires good purchase price or value-add.
- 12%+ — Possible in cash-flow markets or via creative financing (seller-financed, assumable, BRRRR with low capital left in).
- Negative — Common in appreciation markets. Only works if you’re comfortable feeding the property every month.
What this metric ignores
Tax benefits (depreciation, mortgage interest deduction), principal pay-down (you’re building equity each month even if cash flow is zero), and appreciation. Cash-on-cash is conservative — total return on rental real estate is often 2–3× the cash-on-cash number over a 10-year hold.