Rental Property ROI Calculator
Purchase Information
Loan Details
Rental Income
Monthly Expenses
Monthly Mortgage Payment (P&I):
Total Monthly Expenses:
Monthly Cash Flow:
Net Operating Income (Annual):
Total Cash Invested:
Cash on Cash Return (CoC):
Understanding Rental Property Cash on Cash Return
Investing in real estate is one of the most reliable ways to build wealth, but not every property is a good deal. To analyze the profitability of a potential rental property, investors use a metric called Cash on Cash Return (CoC). Unlike simple equity growth, CoC measures the annual cash income earned on the cash actually invested in the property.
How is Cash on Cash Return Calculated?
The Cash on Cash return formula is relatively straightforward, yet it provides a powerful insight into the efficiency of your capital.
Formula:
Cash on Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100%
To use this calculator effectively, you need to understand the two main components:
- Annual Cash Flow: This is your Gross Rental Income minus all operating expenses (taxes, insurance, maintenance, vacancy) and debt service (mortgage payments).
- Total Cash Invested: This includes your down payment, closing costs, and any immediate repair or rehabilitation costs required to get the property rent-ready.
Example Calculation
Let's look at a realistic scenario to understand how the numbers work:
- Purchase Price: $200,000
- Down Payment (20%): $40,000
- Closing & Repair Costs: $5,000
- Total Cash Invested: $45,000
If the property generates $1,500 per month in rent, and your total expenses (mortgage + taxes + insurance + repairs) are $1,200, your monthly cash flow is $300.
- Annual Cash Flow: $300 × 12 = $3,600
- CoC Return: ($3,600 / $45,000) = 0.08 or 8%
What is a "Good" Cash on Cash Return?
While target returns vary by investor and location, a Cash on Cash return of 8% to 12% is generally considered strong for long-term buy-and-hold residential real estate. In highly appreciative markets, investors might accept a lower CoC (4-6%) in exchange for potential equity growth, while in stable cash-flow markets, investors often seek 10% or higher.
Why Vacancy and Maintenance Matter
Novice investors often make the mistake of calculating returns based on 100% occupancy and zero repairs. This calculator includes inputs for:
- Vacancy Rate: Typically 5-8% (representing about 2-4 weeks of vacancy per year).
- Maintenance: Setting aside 5-10% of monthly rent for future repairs (HVAC, roof, plumbing) ensures your cash flow calculations are realistic and sustainable.