Cash-on-Cash Return Calculator
Cash flow against cash invested for a rental, including the loan constant — the hurdle a cap rate has to beat, which is not the interest rate.
Cash-on-cash counts only the cash in and the cash out in a year. It ignores principal being repaid, appreciation and the tax treatment of depreciation, all of which are real and none of which arrive as money this year. Nothing is uploaded.
A 7% loan costs 7.98% a year
The usual test for whether borrowing helps is to compare the cap rate against the interest rate. That is the wrong comparison, and it errs in the direction that flatters the deal. What the loan actually takes out of the property each year is the whole payment — interest and principal — as a share of what was borrowed. That is the loan constant, and on a thirty-year loan at 7% it is 7.98%.
| Interest rate | Loan constant | Against a 5.17% cap rate | Cash-on-cash |
|---|---|---|---|
| 3% | 5.06% | borrowing helps | 4.93% |
| 4% | 5.73% | borrowing hurts | 3.13% |
| 5% | 6.44% | borrowing hurts | 1.21% |
| 6% | 7.19% | borrowing hurts | -0.82% |
| 7% | 7.98% | borrowing hurts | -2.94% |
| 8% | 8.81% | borrowing hurts | -5.15% |
Every constant in that table sits above its own interest rate, so the hurdle is always higher than the rate on the paperwork. The crossover — where the constant meets the 5.17% cap rate — is at 3.17%, roughly two points below the cap rate itself. That gap is the whole misunderstanding: a property yielding 5.17% looks like it comfortably clears a 5% loan and does not. A shorter term raises the constant further; a longer one lowers it towards the interest rate without ever reaching it.
Leverage amplifies whichever way the gap points
When the cap rate beats the constant, borrowing more raises the return on cash. When it does not, borrowing more lowers it, and the further you borrow the worse it gets. The same building returns 5.03% at 100% down and -15.69% at 10% — a 21-point spread on one property, decided entirely by which side of the crossover it sits.
| Down payment | Cash invested | Cash flow | Cash-on-cash | Debt coverage |
|---|---|---|---|---|
| 100% | $288,000 | $1,206/mo | 5.03% | no debt |
| 50% | $148,000 | $275/mo | 2.23% | 1.29 |
| 35% | $106,000 | $-5/mo | -0.05% | 1.00 |
| 25% | $78,000 | $-191/mo | -2.94% | 0.86 |
| 20% | $64,000 | $-284/mo | -5.33% | 0.81 |
| 10% | $36,000 | $-471/mo | -15.69% | 0.72 |
Paying cash converges on the cap rate — the only difference left is the closing costs, which are cash out that the cap rate never counted. And debt coverage crossing below 1.00 is the same event as the cash flow turning negative, stated in the lender's units rather than yours. The property itself is unchanged down the whole table; the cap rate would report one number for every row.
How to use
- Enter the property figures and your financing terms.
- Read cash flow, cash-on-cash return and debt coverage.
- Compare the cap rate against the loan constant, not the rate.
- Change the down payment to see leverage amplify.
Frequently asked questions
What is cash-on-cash return?
Annual cash flow divided by the cash you put in — down payment plus closing costs. Unlike the cap rate it moves with your financing, which is what makes it the investor number rather than the property number.
Does borrowing help or hurt my return?
It amplifies whichever way the gap already points. When the cap rate beats the loan constant, more leverage raises the return; when it does not, more leverage lowers it. The same building here returns +5.03% at 100% down and −15.69% at 10%.
What is a loan constant?
Annual debt service as a percentage of the amount borrowed. It is what the loan actually takes out of the property each year, and it is higher than the interest rate because the payment repays principal too — a thirty-year loan at 7% has a constant of 7.98%.
So the interest rate is the wrong comparison?
Yes, and it errs in the direction that flatters the deal. A property at a 5.17% cap rate looks like it comfortably clears a 5% loan; against the 6.44% constant of that loan it does not. Here the crossover sits at 3.17% — two full points below the cap rate.
Does a longer loan term help?
It lowers the constant, because the same principal is spread over more payments, so it moves the constant towards the interest rate without ever reaching it. That improves cash flow and cash-on-cash while costing more interest overall, which this calculation does not weigh.
What is debt service coverage?
Net operating income divided by annual debt service. Below 1.00 the property does not cover its own mortgage, which is the same event as negative cash flow stated in the lender units. Most lenders want 1.20 or better on a rental.
What does cash-on-cash leave out?
Principal being repaid, appreciation, and the tax treatment of depreciation — all real, and none of them money arriving this year. It is a liquidity measure rather than a total-return measure, which is why a property can show a poor cash-on-cash return and still be a reasonable long-term holding.
Does this send anything anywhere?
No. Every figure is computed in your browser, and nothing is uploaded or stored.
🔒 This tool runs entirely in your browser. Nothing you enter is uploaded, logged, or stored.