How to Calculate Marginal Rate of Taxation

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Rental Property Calculator

Purchase Information
Loan Details
Income & Expenses
Cash on Cash Return (ROI): 0.00%
Monthly Cash Flow: 0.00
Annual Cash Flow: 0.00
Cap Rate: 0.00%
Net Operating Income (NOI): 0.00
Total Cash Invested: 0.00

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 rely on specific metrics. The most critical of these for investors using leverage (loans) is the Cash on Cash Return.

What is Cash on Cash Return?

Cash on Cash Return measures the annual return the investor made on the property in relation to the amount of mortgage paid during the same year. It is considered one of the most important ROI metrics in real estate investing because it tells you exactly how hard your actual invested cash is working for you.

Unlike a standard Return on Investment (ROI) calculation which might look at the total value of the asset, Cash on Cash focuses strictly on the cash flow relative to the cash invested.

The Cash on Cash Formula

The formula used in the calculator above is:

Cash on Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100%

Components of the Calculation:

  • Annual Pre-Tax Cash Flow: This is your Gross Rent minus all operating expenses (taxes, insurance, maintenance, vacancy, management) and your mortgage debt service (principal and interest).
  • Total Cash Invested: This includes your Down Payment, Closing Costs, and any immediate Repair/Rehab costs required to get the property rentable.

Example Scenario

Let's say you purchase a property for $200,000. You put 20% down ($40,000) and pay $5,000 in closing costs. You also spend $5,000 on new paint and flooring.

Total Cash Invested: $40,000 + $5,000 + $5,000 = $50,000.

After collecting rent and paying the mortgage, taxes, and insurance, you are left with $300 per month in pure profit (cash flow). That is $3,600 per year.

Cash on Cash Return: ($3,600 / $50,000) = 7.2%.

This means for every dollar you invested, you earned 7.2 cents back in that year, excluding appreciation or loan paydown.

Cash on Cash Return vs. Cap Rate

You will notice our calculator also outputs the Cap Rate. While Cash on Cash measures the return on your specific equity (factoring in the loan), the Cap Rate measures the return of the property as if you bought it entirely with cash. Cap Rate helps you compare the profitability of the building itself, regardless of how it was financed, while Cash on Cash helps you analyze your specific financial leverage.

What is a Good Return?

Target returns vary by investor strategy and market conditions. However, many real estate investors aim for a Cash on Cash return between 8% and 12%. Returns higher than 15% are often found in riskier, lower-income neighborhoods, while safer "Class A" properties in hot markets might only yield 4-6% cash flow but offer higher appreciation potential.

function calculateRentalROI() { // 1. Get Input Values var price = parseFloat(document.getElementById('purchasePrice').value) || 0; var closing = parseFloat(document.getElementById('closingCosts').value) || 0; var repairs = parseFloat(document.getElementById('repairCosts').value) || 0; var downPercent = parseFloat(document.getElementById('downPaymentPercent').value) || 0; var interest = parseFloat(document.getElementById('interestRate').value) || 0; var termYears = parseFloat(document.getElementById('loanTerm').value) || 0; var monthlyRent = parseFloat(document.getElementById('monthlyRent').value) || 0; var yearlyTax = parseFloat(document.getElementById('annualTaxes').value) || 0; var yearlyIns = parseFloat(document.getElementById('annualInsurance').value) || 0; var monthlyHOA = parseFloat(document.getElementById('hoaFees').value) || 0; var vacancyPct = parseFloat(document.getElementById('vacancyRate').value) || 0; var maintPct = parseFloat(document.getElementById('maintenanceRate').value) || 0; var mgmtPct = parseFloat(document.getElementById('managementFee').value) || 0; // 2. Calculate Initial Investment var downPaymentAmount = price * (downPercent / 100); var loanAmount = price – downPaymentAmount; var totalCashInvested = downPaymentAmount + closing + repairs; // 3. Calculate Mortgage Payment var monthlyMortgage = 0; if (loanAmount > 0 && interest > 0 && termYears > 0) { var monthlyRate = (interest / 100) / 12; var numPayments = termYears * 12; // Formula: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1] monthlyMortgage = loanAmount * (monthlyRate * Math.pow(1 + monthlyRate, numPayments)) / (Math.pow(1 + monthlyRate, numPayments) – 1); } else if (loanAmount > 0 && interest === 0) { monthlyMortgage = loanAmount / (termYears * 12); } // 4. Calculate Operating Expenses var monthlyTax = yearlyTax / 12; var monthlyIns = yearlyIns / 12; var vacancyCost = monthlyRent * (vacancyPct / 100); var maintCost = monthlyRent * (maintPct / 100); var mgmtCost = monthlyRent * (mgmtPct / 100); var totalMonthlyExpenses = monthlyTax + monthlyIns + monthlyHOA + vacancyCost + maintCost + mgmtCost; // 5. Calculate Metrics var monthlyNOI = monthlyRent – totalMonthlyExpenses; // Net Operating Income (before debt service) var annualNOI = monthlyNOI * 12; var monthlyCashFlow = monthlyNOI – monthlyMortgage; var annualCashFlow = monthlyCashFlow * 12; var cocReturn = 0; if (totalCashInvested > 0) { cocReturn = (annualCashFlow / totalCashInvested) * 100; } var capRate = 0; if (price > 0) { capRate = (annualNOI / price) * 100; } // 6. Update UI document.getElementById('cocResult').innerText = cocReturn.toFixed(2) + "%"; // Format currency helper var formatter = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', }); document.getElementById('monthlyCashFlow').innerText = formatter.format(monthlyCashFlow); document.getElementById('annualCashFlow').innerText = formatter.format(annualCashFlow); document.getElementById('capRate').innerText = capRate.toFixed(2) + "%"; document.getElementById('noiResult').innerText = formatter.format(annualNOI); document.getElementById('totalCashInvested').innerText = formatter.format(totalCashInvested); // Styling for negative cashflow if (monthlyCashFlow < 0) { document.getElementById('monthlyCashFlow').style.color = "red"; document.getElementById('annualCashFlow').style.color = "red"; } else { document.getElementById('monthlyCashFlow').style.color = "#333"; document.getElementById('annualCashFlow').style.color = "#333"; } // Show results document.getElementById('resultsSection').style.display = 'block'; }

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