JB PARCELCash-on-Cash Return Calculator
Cash-on-cash is the return on the money that actually left your bank account. It is the number to compare against a CD, a fund, or the next deal, because it already includes your leverage.
How this calculator works
The formula is annual pre-tax cash flow divided by total cash invested. The formula is not the hard part. Getting the denominator honest is.
Total cash invested is every dollar that left your account to make the deal happen: down payment, closing costs, rehab, points you paid in cash, furnishings, and the carrying costs between closing and your first rent check. That last one is the most commonly omitted, and on a three-month rehab it can be several thousand dollars. Seller credits come back off the total.
The after-tax view matters more on real estate than on almost any other asset, because depreciation is a paper deduction against real cash. If a property throws off $3,780 of cash flow and generates $9,200 of depreciation, the cash flow is fully sheltered and there is excess deduction left over, which may offset other income depending on your situation. That is why the after-tax return here matches the pre-tax return instead of falling below it, which happens with essentially no other asset class, and why any excess deduction may still be worth something against other income depending on your situation.
One honest limitation: cash-on-cash is a snapshot of year one. It does not know about appreciation, rent growth, principal paydown, or what you sell for. Use it to compare deals quickly and to sanity-check leverage. Use IRR when you want the whole story.
Worked example: the same Clarksville rental
$315 a month of cash flow on $88,150 of cash into the deal.
| Down payment | $71,250 |
|---|---|
| Closing costs | $6,500 |
| Rehab and make-ready | $8,000 |
| Carry during rehab | $2,400 |
| Total cash invested | $88,150 |
| Annual cash flow | $3,780 |
| Cash-on-cash | 4.29% |
| With principal paydown | 7.24% |
4.29 percent alone is unremarkable. Add $2,600 of principal paydown and it is 7.24 percent, add depreciation sheltering the cash flow, and add whatever the property appreciates, and the picture is different. That layering is the real argument for rental property, and it is also why cash-on-cash by itself should never be your only test.
Questions investors ask
What is a good cash-on-cash return?
Eight to twelve percent is the range most buy-and-hold investors target on a leveraged rental. In high-rate periods, quality property in strong Tennessee submarkets often prices to less than that, and buyers accept it for the appreciation and tax treatment. Below about four percent you are competing with risk-free alternatives and should be able to explain why the property still wins.
Should the down payment be the only cash counted?
No. Count everything you spent to own and stabilize the property: closing costs, rehab, points paid in cash, appliances and furnishings, and the mortgage, utility, and insurance payments you made before rent started. Underweighting the denominator is the most common way investors flatter their own returns.
Cash-on-cash versus cap rate, which matters more?
They answer different questions. Cap rate values the property with no financing, which is how you compare buildings and how commercial appraisals work. Cash-on-cash measures what your specific dollars earn given your specific loan. Look at both. A great cap rate with a bad loan is a bad investment, and vice versa.
How does depreciation change the return?
Depreciation is a deduction you take without spending anything, so it shelters cash flow from tax. A residential rental depreciates over 27.5 years on the improvement portion of basis. On a $300,000 property with a 20 percent land allocation that is about $8,700 a year of deduction against real dollars of income. Run yours in the depreciation calculator, and note that it is recaptured when you sell unless you exchange.
Does cash-on-cash account for appreciation?
No, and that is its main blind spot. It measures cash flow against cash invested in a single year. Appreciation, principal paydown, and sale proceeds are all invisible to it. When you want the number that includes all of it across the hold, use the IRR calculator.
Related calculators
Screening a real property? Pull its appraised value, assessed value, acreage, land use, and last recorded sale off the JB PARCEL parcel map and drop the real numbers into this calculator instead of guessing. Coverage runs across every county we carry.