How the Cash on Cash Calculator Works

One calculation engine produces every number on this site, from the homepage calculator to the tables on the return and price pages. This page documents what it does so you can check it.

The return

cash on cash return = annual pre-tax cash flow / total cash invested
total cash invested  = down payment + closing costs + upfront repairs

Pre-tax means before income tax and before depreciation. Principal paydown is not added back. Appreciation is ignored. This is the standard definition used by investors and lenders.

Cash flow

gross scheduled income   = (monthly rent + other monthly income) × 12
effective gross income   = gross scheduled income × (1 − vacancy %)
operating expenses       = taxes + insurance + HOA × 12 + other × 12
                         + (maintenance % + capex % + management %) × effective gross income
net operating income     = effective gross income − operating expenses
annual debt service      = monthly principal and interest × 12
annual cash flow         = net operating income − annual debt service

Percentage expenses are applied to collected (effective) income, not to scheduled rent, which matches how most investors budget them.

Principal and interest

payment = L × r × (1 + r)^n / ((1 + r)^n − 1)
L = loan amount, r = annual rate / 12, n = term in months

Interest-only payments are L × r. A zero rate falls back to L / n. A 100% down payment produces no loan and no debt service.

Other metrics

• Cap rate = net operating income / purchase price
• All-cash return = the same property with 100% down: NOI / (price + closing costs + repairs)
• Leverage is positive when the financed return exceeds the all-cash return
• DSCR (NOI basis) = net operating income / annual debt service
• Payback = total cash invested / annual cash flow

Rent for a target return

Cash flow is linear in rent, so the solver is direct:

cash flow needed  = cash invested × target %
EGI needed        = (cash flow needed + fixed expenses + debt service) / (1 − percentage expenses)
gross needed      = EGI needed / (1 − vacancy %)
rent needed       = gross needed / 12 − other monthly income

Max price for a target return

Price changes both the cash invested and the loan, and taxes are held fixed at the entered dollar amount, so the return is not a simple function of price. The engine solves it by bisection: it searches prices between $1,000 and $20 million for the highest one that still produces the target return, to within a fraction of a dollar.

Rating bands

• Excellent: 12% and above
• Good: 8% to 12%
• Fair: 4% to 8%
• Weak: 0% to 4%
• Negative: below 0%

These reflect common investor hurdle rates for financed long-term rentals. Your own target may differ, and the calculator lets you set it.

Assumptions on the return and price pages

• Down payment: 25%, closing costs 3% of price, no upfront repairs
• Interest rate: 7.25%, 30-year fixed, fully amortizing
• Vacancy: 5% of scheduled income
• Property taxes: 1.2% of price per year. Insurance: 0.5% of price per year
• Maintenance 5%, capital reserves 5%, management 8% of collected income
• "Typical rent" on price pages: 0.9% of price per month, rounded to $25

Taxes and insurance vary widely by state. The homepage calculator lets you replace every assumption with a real figure.

Rounding

Rents in tables are rounded to the nearest $5 and dollar figures to the nearest dollar for display. Percentages are computed from unrounded values, so a displayed rent may reproduce a return that differs by a tenth of a point.

Source code

The engine is a small TypeScript module with unit tests covering the income statement, the payment formula, the cap rate, the leverage comparison and both solvers.