How do you calculate cash-on-cash return on a rental property?

Cash-on-cash return is a rental’s annual cash flow after the mortgage, divided by the total cash you put in: the down payment, closing costs and any make-ready work. Annual cash flow is the property’s net operating income minus a year of loan payments.

By the Market X Consulting Editorial Team · Updated 10 November 2026

Market X Consulting’s Investor Deal Analyzer calculates it next to cap rate and DSCR for up to three deals at once. In the sample property below, cash flow comes out at −$279 a year, so the return is −0.4% on $65,000 invested; its figures are illustrations, not market prices, rents or rates.

What counts as cash invested?

Everything you pay to own the property and get it rented: the down payment, the buyer’s closing costs and the make-ready or repair work before the first tenant. In the sample that is $55,000 down, $6,000 of closing costs and $4,000 of make-ready, $65,000 in all.

Leave out money you could get back without selling, such as a refundable deposit, and be consistent: if you count a reserve you set aside at purchase, count it on every deal you compare.

How do you get annual cash flow?

Start with the rent you expect to collect, subtract operating expenses to get net operating income (NOI), then subtract a year of principal and interest. In the sample, $1,850 a month becomes an NOI of $12,894 and, after $13,173 of loan payments, annual cash flow of −$279.

effective gross income = $1,850 × 12 × (1 − 5% vacancy) = $21,090 operating expenses = tax $2,900 + insurance $1,500 + 18% of income for management, maintenance, reserve ($3,796) = $8,196 NOI = $21,090 − $8,196 = $12,894 loan payments = $1,097.75 a month on $165,000 at 7.0%, 30 years = $13,173 a year cash flow = $12,894 − $13,173 = −$279 cash-on-cash = −$279 ÷ $65,000 = −0.4%

The 7% rate, the rent and every expense are sample assumptions. Use a lender’s quote, an insurance quote and the tax record, and expect the tax to change after a sale is reassessed.

What is the difference between cap rate and cash-on-cash return?

Cap rate describes the property; cash-on-cash describes your deal. Cap rate is NOI divided by the price and ignores the loan, so two buyers of the same house share it. Cash-on-cash includes the loan and the cash each buyer put in. The sample has a 5.9% cap rate and a −0.4% cash-on-cash return.

cap rate = NOI ÷ price = $12,894 ÷ $220,000 = 5.9% cash-on-cash = annual cash flow ÷ cash invested = −0.4%

What is DSCR?

The debt service coverage ratio is NOI divided by a year of loan payments. Above 1.00 the property’s income covers the loan; below 1.00 the owner pays the difference. Lenders commonly look at it, especially on investment loans. The sample DSCR is 0.98x, so its owner would make up the shortfall each year.

DSCR = NOI ÷ annual loan payments = $12,894 ÷ $13,173 = 0.98x

Each lender sets its own minimum and its own way of counting income, so ask yours before you rely on a figure.

What is a good cash-on-cash return?

There is no single good figure. It depends on what else your cash could earn, how much risk the property carries and how fragile the number is. In the sample, one extra vacant month would move cash flow from −$279 to −$1,796 for the year, which tells you more than the percentage does.

Quick screens such as the “1% rule” (monthly rent as a share of all-in cost; 0.80% in the sample) sort listings fast, but they are rules of thumb, not tests of a good deal. Run the full numbers before an offer.

These answers and the instruments are planning and analysis tools. They are not legal, tax, accounting, financial or appraisal advice, and they do not promise or imply any income or result. Every example figure is a sample chosen to show the arithmetic, not a benchmark, a market figure or an expectation.