Mortgage

A mortgage is a loan backed by real estate that the borrower pays back, with interest, over a fixed number of years. Its annual payments are the debt service subtracted from net operating income to get cash flow, so the mortgage's size, rate and term set most of the gap between a property's cap rate and an investor's cash on cash return.

The calculator's default deal borrows $375,000 at 7.25% over 30 years, a payment of $2,558 each month and $30,698 over a year. That single line turns $40,210 of NOI into $9,512 of cash flow. At 5% the same loan costs $24,157 and cash flow is $16,053; the return goes from 6.3% to 10.7%.

Term matters too. A 15-year loan has a much higher payment and can push cash flow negative even when the property is sound. An interest-only period removes principal from the payment and raises the return until it resets. Loans on investment property usually want 20 to 25% down and price above owner-occupied rates. DSCR loans are a variant that qualifies the deal on its rent instead of the borrower's income.

Further reading: Mortgage on Wikipedia.