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Why is cash-on-cash return on rental properties important to know?
It can be incredibly difficult to calculate the actual return on investment (ROI) for rental properties. You must consider actual returns like cash flow and tax benefits as well as returns that are not realized until a sale or refinance, such as appreciation and equity pay down. A much easier way to calculate the returns on rental properties is to figure the cash-on-cash return. This return is simply the amount of cash you initially invest into the property compared to the income generated by that property. Cash-on-cash does not factor in unseen returns like appreciation, equity pay down, or even tax benefits. The great thing about cash-on-cash return is if you can make a decent return just from the income, then all the other benefits are a bonus.
Instructions for the cash flow calculator
- Fill in cells highlighted in yellow.
- If you are missing certain values, head over to our Rental Property Cash Flow Calculator first.
- Cells highlighted in green will show your results.
Notes about the cash-on-cash calculator
- Cash-on-cash is tricky to figure, because you may not be paying all of your costs at the same time. I may pay for the down payment and closing costs at closing, but I won’t pay for the repairs until they are completed and I paid the earnest money well before closing. Because of this, it is hard to know when to start the cash on cash returns. Cash on cash is not an exact science, but a way to measure your returns on your investments.
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When you buy a home that needs a lot of repairs, it can take weeks or months to repair. When the home is sitting vacant, it is not making any money and actually costing you money. You may have to make mortgage payments, pay HOA fees, pay utilities or other costs while the home is vacant. These costs need to be considered when calculating cash on cash returns.
How do you determine the cash on cash return and why is it better than using ROI on rental properties?
The way I calculate cash on cash return may not be the exact way an accountant would calculate it, but this technique is the best way for me to judge the returns on a rental property.
Why is it hard to calculate the ROI on rental properties?
ROI stands for return on investment, which is usually a good way to judge investments. With ROI, you calculate all the money you made from your investment and divide it into the cash invested. If you make $50,000 on an investment that cost you $500,000 you have made a 10% ROI. With rental properties, you won’t know your true ROI until you sell your rental property. I want to keep my rental properties as long as I can to continue to build cash flow so I can retire in luxury.
ROI includes your total investment versus your total returns and rental properties have a lot of awesome benefits. Rental properties have tax benefits thanks to depreciation, can be leveraged easily, provide cash flow, appreciation and you can refinance a rental property as well to take cash out.
It is pretty simple calculating the rental income (cash flow) versus the cash invested, but it is harder figuring all the other advantages. I recently calculated that my rental properties increased my net worth by $600,000. However, if I sold my rentals, I would have to pay selling costs and a lot of taxes. I would not gain that entire $600,000, and I would also have to divide what is left of the $600,000, along with my cash flow and tax benefits over the years I have owned my properties to see what my yearly ROI is. Right now, my estimation of the selling prices and costs are an educated guess and I have not realized any of that gain.
How is the cash on cash return calculated on rental properties?
The cash on cash return is calculated by determining the cash flow or rental income on a property and dividing it by the initial cash invested into that property. If you spend $25,000 on the down payments, closing costs and repairs on a rental property and get $5,000 in cash flow, your cash on cash return would be 20 percent. To make it really easy I created a cash on cash calculator here.
Why is it difficult figuring the cash on cash return on rental properties?
It seems pretty simple to figure the cash on cash return on rental properties, but there are some situations that make it difficult. The biggest problem is deciding when to start figuring the cash on cash return? If you buy a rental property that needs repairs, it may not be ready to rent for weeks or months. You will pay the down payment and closing costs when you buy the house, but you won’t pay the contractor until his work is done. You also won’t collect rent until the house is repaired and rented. I like to start calculating the cash on cash return once I have paid all expenses and the home is rented.
What doesn’t the cash on cash return tell us about rental properties?
The cash on cash return does not tell us everything about rental properties like the ROI will. The cash on cash return does not factor in any appreciation or tax benefits. The cash on cash also does not factor in the equity pay down on loans which can be a significant amount of money. I like to calculate my cash on cash return on my rental properties, and I consider the other benefits a bonus. If a new rental property provides at least 20% cash on cash return, I know I will make a lot of money on that property.
thi scalculator doesn’t seem to work. I had cash flow of $2500 and put 25k in. 10% cash on cash no duh!
I entered your numbers and it told me 10%. What did you get?
Hello Mark,
Have been appreciating reading your site. I wondered how I might calculate cash-on-cash when I had converted my primary residence to a to rental after 5 years of living in the home.
Also, I’m considering a 2nd rental and not sure what monies I should use as a down payment. I have 60k equity in current residence and 40k equity in rental. Also have 401k, IRA, Roth IRA, and credit cards? Any insight would be greatly appreciated. Thank you and Happy Holidays!
Hi Charlie, It is tough to calculate cash on cash in that situation. Since you lived in the home it served more purposes than making money. Look into a home equity line of credit and you could also use the IRA to invest if it is self directed.
Closing on my first rental property in a few weeks. 30% Cash on Cash return… and thats being very conservative with the calculation. Have any experience with rental properties in low income areas? this is a $34K 2 family house with $1100 in rent and this is a very common deal around here.
You do see higher returns on paper, but you will probably have more turnover and maintenance.
Hi Mark, my husband and I are wanting to wisely invest 300k into long-term rental properties. We are looking at properties in the 130k range that are either two separate houses on one lot or duplex/triplex. We were advised by our relatives who own several rentals to take out mortgages on the properties. That brings up several questions. Will we be able to find lenders for more than 4 properties at a time? How long does a property have to produce income for it to be considered for a portfolio loan? How does our personal income factor in when applying for the mortgage? Is it even wise to invest in that many properties right now? We do not want to get in over our heads and lose everything before we even get started.
We already know that we can qualify for 130k investment property as long as we had 45k (26k down, 19k for reserves) with our income at 32k a year. Will they loan on say 7 properties if we have 45k for each property but only one income of 32K? How long would our properties have to produce income for them to be added to our personal income in order to purchase more houses? We won’t buy if we cannot get at least a 1% return, but this is the part where I am confused. One relative says we should expect at least 1% return a month on the total price, which sounds off, when deducting the mortgage, taxes, repairs, vacancies etc. Real estate sites, such as yours suggest a 1%/2% return on cash invested, which makes more sense. Does this mean we see a 1% return on the 26k down? And, to just cut to the chase how many properties do you believe one would need to bring in 32k a year? Is this doable with 300k? I ask this because my husband wants to go back to school full time and we would like to invest enough where we can basically trade one income for another. Relatives say it’s realistic to expect to make a 10% return by next year on our properties, but we would like more than “one” opinion. Any additonal advice for someone who truly has no idea what they are doing, and is learning on the fly, would be greatly appreciated. Thank you for reading and responding to my dissertation. Amanda
Hi Amanda, I would suggest to keep reading the site as much as possible! Most of these questions are answered, but you need to learn more about your market as well. Here is a good article to start off with. https://investfourmore.com/2014/04/28/many-rental-properties-need-retire/
19k for reserves seems really high! I make about 6,000 a month off a 300,000 investment.
Thanks for getting back to me and the article reference. I have a newborn, and a toddler, with no idea where to begin my research. So, it’s nice to be sent in the right direction. Thanks and good luck with your 100 rentals goal.
Hi Mark,
What is the average monthly rent/sqft in the area you are making 6K on and 300K investment?
I guess it would be about .75
Hi Mark,
I’ve used IRR as my calc of choice in previous deals but am trying to learn more about the CCR metric. Question – is it appropriate to include cash reserves (i.e. money set aside for future repairs, vacancy etc. that hasn’t been spent) in the CCR calculation? Most of the calcs I’ve seen only refer to cash that’s truly “out the door”. Obviously it makes a huge difference in the result! Appreciate your views!
Thanks – JOe
I do not, since I need an emergency fund anyway for my life.The two can sort of be intertwined.
Hi Mark,
I am planning to purchase an apartment for $320k and worth no mortgage as to so mot wish to touch interest, either by paying or collecting. The unit is leased for $1900 a month plus condo fees of $550. Do you think this is wise? I have tried to calculate the cash flow but it seems off, unless I am not doing it right.
Thank you in advance for your help,
Salima
Does not seem like a very good return to me for an all cash purchase
Outo correct 🙁
With no mortgage*
Hi, Mark. I’m looking at purchasing a duplex in a C- neighborhood in Cleveland. The property is for sale for $40,000 and the current tenants want to stay. It is a mother in one unit/son in an other and total rent is $1100 a month. The duplex was owned by a family member. Please let me know what I’m missing here. The seller states no issues except a water leak from the upstairs bathroom to the downstairs bathroom due to the shower not being closed. Thank you.
Without knowing the market it is very hard for me to give an opinion
*sell
i have a trailer park and 14 brick and mortar units on one lot, complete with a laundry on site , its in a lower income area in augusta, ga my gross income is aprox 9k per month with a net of aprox 5k(with mortgage left for 9 years then add 2k to net) what do you think this is worth ? had an offer the other day ( wasnt trying to seel) of 650k
Really hard to say. A lot depends on cap rates in your area
Hey Mark. We’re trying to invest in $273k single family home with 20%down and rental at $1,800 in neighborhood with similar homes. It’s a brand new home. Do you think it will be a good purchase? Taxes: $3,300/yr, insurance:$800/yr, $132/month HOA, 4.9% interest rate. Please help. Thanks in advance.
What will the cash flow be?
Thanks for responding. Principal+interest +hoa+taxes+insurance +mortgage payment= $1,682/per month. Projected rent is $1,800. So that leaves $118. Given if we ‘re the first owner, we would have 2 years warranty from the builder.
That would be negative cash flow on the property once you factor in vacancies and maintenance. Even with a warranty that will not cover tenant damage or wear and tear
what purchase price range do you think I should start looking into. There are couple of houses on sale in that area/neighborhood with similar rent, they’re just not brand new. Truly appreciate your input, because we were ready to give our earnest money on that house.
It all depends on your market and rents in that area. It is really tough to make a new house cash flow as a rental.
Hi Mark, after calculating numbers I get a range of $184-284/mo of cash flow, 3.5-5.4% cash on cash return depending on what I would be able to secure for rents. The property I’m interested in is in great shape and in a great location. Is it still even worth buying it with those kind of returns?
That is up to you, for me it would not be a great rental. I have high standards and like to buy properties that need work so I can add value and get better cash flow
Hi Mark
I am planning to buy a Townhome for 375K and it seems it will need updates and repairs for $50K or so to get me a rental of $2600 per month. The property was built in the early 80’s and needs updating, its 2500sq ft with a two car garage and a finished basement. These are features not common to the area where we are for townhomes. it needs to be insured as a single family home and we are responsible for all exteriors. HOA covers basis grass and snow etc. do you recommend it? Comps run $420K to $450K. Witha basic repair of $15-20K it will rent for $2200. Since I am an investor teh total monthly outflow including taxes etc. is $2350 per month.
That does not sound like a great deal to me. It will not cash flow well, and after repairs you will have about as much into it as it is worth
The more I learn the more exited about the deal I’m working on. Its a small deal and the cash flow is only $325 but the cash on cash return is 48%. Not bad for my first investment. That’s better than my simulated stock portfolio and some of my pics have gone up over 60% in the last year. Im so glad I bought your book. Thanks Mark
Awesome!
Mark, I am looking to purchase a group of 8 condos which are all currently tenanted for $400,000 (just turnover rehab necessary) with a 75% loan (OOP $100K + closing cost of around $8K). The condos are currently generating $5680/mo in rent with monthly taxes of $455 and monthly HOA of $1458 (collectively, of course).
I’m showing COC return of a bit over 39%, is that a solid deal or no?
Thanks,
Josh
Sounds like a decent deal on the surface without knowing what market value is on them.
Hey Mark – great article! Looking to purchase my first property and was wondering if you could analyze this deal for me:
This is a Condo – everything is in monthly figures and I will be managing myself.
Condo is move in ready, does not need any work. The HOA fees include Water, Parking, Common Insurance, Exterior Maintenance, Lawn Care, Scavenger, Snow Removal.
Purchase Price: $204,500
Mortgage: 754(4.85% IR)
Taxes: 341
Insurance: 33
HOA: 175
Vacancy: 190
Repairs: 100
Rents for: $1900
*Cash flow about $308/month – COC 8% – is This a deal you would do?
*Great location, walk to train station, I’ve heard horror stories about HOA’s though!
Thank you!
Seems okay, are you paying full market value?
Hi Mark!
I have a condo that I bought for $198k (cash) about 3 years ago. I’m purchasing another place in the same city for around $650 and I need advise on whether to rent my condo out, or sell it outright and collect the cash to apply to my new place. I could get $1700/month for the condo, and it’s in a college town so renting would be easy to do.
Obviously there is lost opportunity cost associated with tying up my money in the property. Is there a calculation I could do to figure out the cost-benefit of selling vs. renting this property when I have no mortgage? Thanks.
Did you live in that condo? One thing to consider is that you would not pay any taxes on the profit if you sold it now and lived in it the last two years.
Hi Mark,
I’m looking to purchase an investment property. Can you explain why it’s better to put only 20% down as opposed to a higher down payment like 50% or 75%, I understand that the CoC is better with the lower down payment, but with a higher down payment, the cash flow is better and the overall interest you pay on the mortgage will be much less.
Thanks
It is usually much better to buy 3 properties instead of just one. That is what a lower down payment does.
Hello Mark – A couple of my friends and I are getting together and planning to start our own “small business”. We all have full time jobs that we don’t plan to leave – hence we landed on real estate investment and renting out property. We all are very stable and want to challenge ourselves with some ventures.
My question is – we are thinking to start with a small (<200K) property that we can rent it out and have a management firm manage it. Of course, with 20% cash initial cashflow could be negative for sometime. Our thinking is if we get our feet wet, we can go for the next one and so on. What would a quick tip for us new bees? We can afford a larger investment, should we instead think getting a larger property?
Thanks!
I would be concerned that you are buying a property that loses money right off that bat.
Hi Mark,
I have a condo in Vancouver Canada with about 575k in equity and a honest cash flow of $800/month. Obviously the coc isn’t great (for my standards) as there is so much equity in the home. I have great opportunities which I’ve already taken advantage of with coc in the area of 28 to 40%. The cash flow (depending on purchase price) is in the neighborhood of $1500 to $2300/month.
The prospective buys are in smaller rural towns, but all have extremely low vacancies (less than 1.5%) and a robust real estate market at this time. They also have good things going on in the community, job growth, city projects and population growth.
I guess my real questions is this. Would you punt the Vancouver condo, take the cash, buy two to three homes and get a very strong coc to help fund future buys, or hold tight on a large, centeraly located, 12 year old, high end condo in the heart of Vancouver.
Maybe answering my own questions, but it could be what’s important now. Cash flow or equity growth. It’s valued at a mil now, but will only continue to grow and yes, I’m set up to ride any wave or bubble break.
My goal is to be a full time investor. I know each situation is unique, but I would like advice on what a top shelf investor focuses on.
Thanks,
Jason
You are making less than 2 percent on your equity. If it were me, I would sell the condo and buy 10 properties in the smaller towns with financing and ten times my returns. Plus if you get a great deal each time you walk into 20 to 30 thousand in equity with each purchase. That is similar to the condo going up in value another $300,000 but you don’t have to speculate to do it. By buying more properties you are also more diversified
HI Mark i am looking at buying a home that has a basement rental. I want to rent both the upstairs 3200 sq ft and the basement 1900 sqft. for a total rent of 2700 per month. i hope to buy the property for 360,000. with 90,000 down. i have done your cash to cash and came up with about 12 percent. the property should not need much work. it is in a good neighborhood. the monthly payment p and i around 1450.00 does these numbers look good to you?
That does not sound too bad. Does that mortgage payment include taxes and insurance>?
Hi Mark,
I am in the process of buying a student rental, which is leased out till May of 2019. The purchase price is $375k. I am putting down 40k cash and I am taking 70k from equity of my primary home. after paying principal, interest and the heloc, and expenses including taxes and insurance I have a positive cash flow of $825. Do you think it is a good deal?
You are making about 7 percent on your money. Are you accounting for maintenance and vacancies? They will be much higher on a college rental
Hi Mark,
I am thinking about getting into this investment. Rent in the area averages about $800-1,000 a month. I would most likely target $850 to begin as this is my first rental and get someone in there.
I would purchase the house for $90k and only put $9k down. Mortgage + interest + pmi would be $600/month. There aren’t any repairs needed currently, but I would expect some in the future since things happen. I would expect a vacancy for 1, maybe 2 months at most.
Is this a good deal? If not, what rent would I need to achieve to make this a good deal?
Much appreciated.
That does not leave much room for cash flow. Are you paying retail or getting a good deal?
Hi Mark: We are looking at buying a lake resort property. The properties almost always include an owner’s residence. When figuring the cap rate and the cash on cash return on investment, don’t we need to subtract the cost of the owner’s residence from the purchase price since it won’t be generating income but it is included in the purchase price? Thanks for the article.
I would look at the entire package as a whole. I don’t think you would subtract anything but just know you would not be getting income from it. Unless you are planning on living there, then I guess it could be subtracted
Hi mark,
I am planning to buy a commercial shop which also has a room above the shop. The property price is $50000, i will make $10000 as down payment. Closing cost is $3200. The property is close to an Institute and a hospital.
Vacancy of the property is below 1 month per year.
Rents are $300 per month. Mortgage payment + Interest= $400 monthly for a period of 20 years.
No repairs needed for now. Median increase in Rent per year is close to 10%. Insurance cost is $0.
Is this a fair deal?
You will be losing money on it for many years.
Should i consider property appreciation over years?
The value is up by 700% over the past 14 years.
I would not count on just appreciation. It is too hard to predict.
Mark,
I am considering buying my first rental property. I expect to get it for $300K and plan to put down $100K. Loan will be financed for 30-year fixed at 4%. My rental expectation is around $1700/month. Is this a good investment in your expert opinion?
Thank you so much!
What is your cash on cash return and is it a good deal? That would not be a good rental for me, but we are all different.
Cash-on-cash with couple of scenarios is between 8.5 and 10. What is a good cash-on-cash return?
Hey Mark,
I am looking at a 2 unit property. Price is $175,000 with total occupancy. Rent for the two units is $850 each. I am looking to put down 35k @ 4.5% apr. Taxes are $1000/yr and Insurance is $800/yr. With these factors, I have a calculated the Cash-on-Cash at roughly 19%.
Is this a sound deal in your opinion?
That is not too bad. Cash on cash seems a little high. Did you include maintenance and vacancies?
Mark,
I am looking at buying a property that has a tenant currently and the tenant will not be moving out for quite some time. The house is almost in foreclosure so I would be able to get the property well below market value. House cost is 172,000 , down payment would be 35,000, Rent would be 1500 a month. Mortgage payment would be roughly 730/mo , taxes would be 400-450/month . House value is 230,000 . No repairs needed at this time. Would something like this be a decent rental investment since we are walking in with 85,000+ in equity even though our cash on cash is only 7.5%?
If it were me, I would flip it because the taxes are so high and you are not making that much money. Are there better rentals with more cash flow you could invest the profit into?
Hello,
This is my first time posting. I have been a part of another deal in 2014 in which I flipped a property and ended up spending too much money like 30k over because I had a husband to “claim” he knew what he was doing in Reno work. He completely tore up the house took down drywall when all it needed was patch work. Well, that is over now and I am doing my own thing.
I have a contract on this property in Waldorf, Md, price was 143k we (me and my agent) went in and asked for 137k seller will not agree pay for closing. Tenants are already in there ( for 7 more months closing date is in a week or so) and they are taking good care of the property all windows need to be replace (about 5 total) because of condensation at an estimate of 1500.00 seller will not pay for, I already asked. Tenants are paying 1300 month. HOA is 35.00 mo, my mortgage will be about 830.00. No repairs will be needed accept for windows.
My interest rate will be 5% with 20 percent down and that will about 27,500.00 cash on cash is 17% is this a good deal? My next investment will be multi fam units. PLEASE EMAIL ME and let me know if I am making a good deal [email protected]
Sounds like a decent deal if you have calculated everything. https://investfourmore.com/2014/06/27/how-do-you-figure-cash-flow-on-rental-properties-with-maintenance-and-vacancies/
Yes, I have calculated everything. Thank you Mark. Do you have any ideas as to how should the renter’s sent me payments or concerns maybe a PO Box? it is not in my LLC. The property is in my name. I probably will not hire a property mgmt. company.
Yeah, whatever is easiest for you. If it is in your name they should be able to find your address pretty easily.
I will be selling my home in a year. I will have about $250-$300k in equity I am going to cash out. I am interested in investing in rental properties out of state. I cannot believe the low cost of properties in places like Detroit, Pittsburg and Milwaukee. It’s hard for me to wrap my mind around why someone would pay $850/rent when they could buy a $35k home and pay $350/mortgage?
Many people cannot buy because of credit, job history, or they just don’t have the buying mindset.
I am looking at buying my first property. Seller wants 65k for this duplex, rent at the moment is $450 per side. I would come in and offer $55k without a new roof, $60k with a new roof (which it does need). Property looks sound and seems like a decent cash flow. I can put 20% down which would make the loan $48k a year and at 6.5% interest would make it about a $300 a month mortgage + about $200 in taxes and insurance. Would this be worth buying to start my journey into real estate investing?
Is it a good deal?
Hi Mark, I came across a site where I can invest in rental income properties and earn 4%-6% COC return as being a passive investor and participate in future appreciation of the asset. I know you are a hands-on investor and like to invest in properties where you can rehab and make higher COC, but I don’t have time to do anything like research or rehab, or management… just want to enjoy the passive returns and share in the market appreciation.
What are your thoughts?
That is pretty low for a cash on cash return. You are mostly betting on appreciation.
Mark, I am debating whether to put down 15% or 20% on my next rental property. If I put down the 15%, I will make quite a bit more in terms of a percentage return on my money, but if I do 20%, I will have a greater cash flow. I know I can use the money saved from a smaller down payment to buy more properties, but smaller down payments reduce the cash flow on each of those properties – meaning I need to buy more to achieve the same amount of cash in my pocket. More houses with smaller cash flow equals more liability to deal with as well. I’m not sure the liability of four houses earning me 1600/month is worth more than 3 houses earning me 1500/month. Assuming there is no appreciation of course, what do think is the better move? 15 or 20% down?
Have you thought about the tax savings, principal pay down or diversification?
what is cash-on-cash return on a $2,000,000 property with a down payment of $500,000 and $15,000 of monthly rental income. Help me how to calculat e this?
36
Never mind I have figured out solution for :
what is cash-on-cash return on a $2,000,000 property with a down payment of $500,000 and $15,000 of monthly rental income. Help me how to calculat e this?
12*15000 = 1820000
(2000000-1820000)/500,000 = .36 i.e 36%
2,000,000 is not part of the equation. only 182,000/500,000
Do you know the Phoenix market? If so, where would you buy a rental? If not, the increase in rental property asking prices has risen by 40% in the last two years. Doesn’t that seem odd? My realtor and other professionals are saying it’s due to the economic boom here. Businesses are moving here. Inventory is low (1.5 months). Home prices are forcing people into rentals while rents are going up. Is this transient? Is this sustainable? If the answers are “no” and “yes” then should I accept a low cash on cash like 4%? If not should I invest outside of Phoenix. I live here and I’m a newbie so I kind of want to be hands on.
I do not know the area but I would never count on things going up that fast to make money
All of the calculators on your site appear to no longer be working. I have used them successfully in the past and love them but now the input cells no longer come up for any of them. Would be very helpful if they became accessible again.
Thank you for all you do!
We just updating them and they should be working now