Real estate investment calculator: cap rate and cash on cash
Net operating income, cap rate, cash flow and cash on cash return from five numbers. Separate the property's performance from the loan.
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| Net operating income | $30,000 |
|---|---|
| Cap rate | 6.00% |
| Annual cash flow | $1,557 |
| Cash on cash return | 1.25% |
Estimates for illustration. Check the assumptions before using these figures.
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How the returns are calculated
Cap rate describes the property. Cash flow and cash on cash describe the investor's deal, loan included. You need both.
- Net operating income
Annual rent minus operating expenses: taxes, insurance, repairs, management and an allowance for vacancy. The mortgage is not an operating expense.
Rental income − operating expenses
- Cap rate
Net operating income as a percentage of the price. It lets you compare properties without the financing.
NOI ÷ purchase price
- Annual cash flow
What's left after the loan payments for the year.
NOI − annual debt service
- Cash on cash return
The year's cash flow as a percentage of the cash the investor put in: down payment, closing costs and any rehab.
Annual cash flow ÷ cash invested
Worked example: $500,000 rental
$42,000 a year in rent ($3,500 a month), $12,000 in operating expenses, $125,000 down and a $375,000 loan at 6.5% for 30 years ($28,443 a year in debt service).
- Rental income
- $42,000
- Operating expenses
- −$12,000
- Net operating income
- $30,000
- Cap rate, $30,000 ÷ $500,000
- 6.00%
- Annual cash flow, after $28,443 debt service
- $1,557
- Cash on cash return, on $125,000
- 1.25%
Why both numbers matter
In the example, the property earns a 6% cap rate. Once the loan is paid, the investor keeps $1,557 for the year on $125,000 in cash, a 1.25% cash on cash return.
A property can look fine on cap rate and thin on cash flow. Run both before you call it a good deal.
A deeper investment analysis in the app
The app's Investment Calculator works in three steps: Property, Units and Expenses. Enter each unit's rent and repair costs, current and projected expenses, then tap Calculate.
- Cap Rate, Cash-on-Cash Return, Annual Cash Flow, Net Operating Income and Debt Service Coverage
- Current performance next to after-improvements, with a unit-by-unit analysis
- 3-year and 5-year projections
- A Target Analysis Tool: enter a desired cap rate and get a recommended purchase price
on the Tools tab. Investment Calculator is one of them.
When agents run the numbers
An investor buyer asks about a duplex
Enter the rent roll and the seller's expenses, and talk about the cash flow, not only the price.
Listing a rental
Show the seller what an investor will see, so the price makes sense to the people most likely to buy it.
A client wants their first rental
Change the down payment and watch cash on cash move. It explains financing faster than a lecture.
Run the numbers here. Run your day in the app
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- Owner lookup, price shown in the appOwner phone numbers and email for a property, charged only when the owner is found.
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Questions agents ask
What is a good cap rate?
There's no single answer. It depends on the market, the property type and the risk. Compare it with recent sales of similar rentals nearby, and look at cash flow too.
What's the difference between cap rate and cash on cash return?
Cap rate ignores the loan: it's NOI divided by price. Cash on cash includes the loan: it's the cash flow after debt service divided by the cash the investor put in.
Does net operating income include the mortgage?
No. NOI is rent minus operating expenses. The mortgage comes out after, in cash flow.
What counts as operating expenses?
Property taxes, insurance, repairs and maintenance, management, HOA dues, utilities the owner pays and an allowance for vacancy. Not the mortgage, and not big improvements.
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