How is this different from cap rate?

Cap rate describes the property with no mortgage. Cash-on-cash describes your position with the mortgage you actually took, so the same building gives different answers to different buyers.

What debt coverage ratio is safe?

Lenders generally want at least 1.2, meaning net operating income covers the payments with twenty percent to spare. Below 1.0 the property does not cover its own mortgage.

Investmentreal estateUnited States only

Cash-on-Cash Return Calculator

Return on the cash you actually put in, after the mortgage. Unlike cap rate this deliberately includes financing, because it answers what your own money is earning rather than what the building earns.

Also called: coc return, cash flow return.

Cash-on-cash return

9% on the 100,000 you actually put in. Cash flow is $9,000.00 a year, or $750.00 a month, after the mortgage.

Annual cash flow

$9,000.00

Monthly cash flow

$750.00

Net operating income

$30,000.00

Debt service coverage

1.43

On the coverage ratio

Comfortably above the 1.2 most lenders want.

How this is calculated

An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.

Method and background

This is what the calculation gives for the numbers you entered. It is an estimate, not advice, and it knows nothing about your situation beyond those numbers. Rules for United States change on a published schedule; the effective date is shown on every rule-based tool.

How this is calculated

Take net operating income, subtract the mortgage payments, and divide by the cash you committed. Leverage makes this diverge sharply from cap rate: borrowing more lowers the cash invested and raises the percentage, which is why a leveraged deal can show a high cash-on-cash return and a thin margin of safety at the same time. The debt coverage ratio is shown for that reason.

cash-on-cash = (net operating income - debt service) / cash invested

NOI: Net operating income (currency)
D: Annual debt service (currency)
C: Cash invested (currency)

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

a nine percent cash-on-cash

Cash actually invested: $100,000.00
Annual rental income: $48,000.00
Annual operating expenses: $18,000.00
Annual mortgage payments: $21,000.00

Cash-on-cash return9%

Worked by hand at each step

Open this example

no debt makes it the unlevered return

Cash actually invested: $400,000.00
Annual rental income: $48,000.00
Annual operating expenses: $18,000.00
Annual mortgage payments: $0.00

Cash-on-cash return7.5%

boundary: with no mortgage this equals the cap rate

Open this example

Method and limits

What it assumes

Cash invested includes deposit, closing costs and any initial works.

What it deliberately does not model

It counts only cash flow, so it ignores principal repayment, appreciation and tax effects, all of which are real returns.
A first-year figure says nothing about later years as rents and rates move.

Formula version 1.0.0 · definition 1.0.0 · United States · Report a problem with this calculator

Frequently asked questions

How is this different from cap rate?: Cap rate describes the property with no mortgage. Cash-on-cash describes your position with the mortgage you actually took, so the same building gives different answers to different buyers.
What debt coverage ratio is safe?: Lenders generally want at least 1.2, meaning net operating income covers the payments with twenty percent to spare. Below 1.0 the property does not cover its own mortgage.