Estimate the cap rate and cash-on-cash return of a rental property based on purchase price, monthly rent, operating expenses, and financing.
| Net Operating Income (annual) | |
| Cap rate | |
| Annual cash flow (after financing) | |
| Cash invested | |
| Cash-on-cash return |
Two of the most common metrics investors use to evaluate rental property returns are cap rate (which ignores financing) and cash-on-cash return (which accounts for how the deal is financed).
Net Operating Income (NOI) is annual rent minus operating expenses, before mortgage payments. Cash invested is your down payment plus closing costs. Annual cash flow subtracts the mortgage payment too, showing what actually lands in your pocket.
What's a good cap rate for a rental property? It varies heavily by market — many investors look for 5-10%, with higher cap rates often reflecting either a better deal or a riskier/less desirable market.
What's the difference between cap rate and cash-on-cash return? Cap rate ignores how the property is financed and shows the return based purely on price and income; cash-on-cash return factors in your mortgage payment and only the cash you actually put in.
Should I include vacancy in my expense estimate? Yes — most investors budget 5-10% of annual rent for vacancy and turnover costs even in strong markets, since no rental stays occupied 100% of the time.
Does this account for appreciation or eventual sale proceeds? No — this calculator focuses on ongoing operating returns (cap rate and cash flow), not appreciation or the profit from eventually selling the property; use an IRR calculator to factor in a future sale.
A property costs $250,000. You put down $50,000 and pay $5,000 in closing costs. It rents for $2,000 a month, operating expenses are $600 a month and the mortgage payment is $1,100.
| Expense | Why it matters |
|---|---|
| Property tax and insurance | Large, recurring and often rising. |
| Maintenance and repairs | Plan an ongoing allowance, not a one-off figure. |
| Vacancy | Units are rarely occupied every month of the year. |
| Property management | Often a percentage of rent if you hire a manager. |
| HOA fees and utilities | Can apply even when the tenant pays rent. |
| Capital expenses | Roofs, heating systems and appliances eventually need replacing. |
ROI is a snapshot of a single year under your assumptions. Test the numbers with a lower rent and higher expenses to see whether the deal still works, compare returns across several properties, and consider local market trends and financing terms. Use the IRR Calculator when you want to include a future sale.
Why can cap rate and cash-on-cash return differ so much? Cap rate ignores financing, while cash-on-cash return reflects your mortgage and the cash you invested, so leverage can push the two figures apart.
Should I use the asking rent or a conservative estimate? A conservative estimate based on comparable listings protects you from overpaying for a property that depends on optimistic rent.