Cash-on-cash answers the question an investor actually cares about: what is my own money earning? Unlike cap rate, it includes the mortgage — because leverage is exactly what changes the answer.
What the Cash-on-Cash Return does
Divides annual pre-tax cash flow by the cash you actually put in — deposit, closing costs and any initial works — rather than by the property price.
Defaults to a 300,000 purchase with 60,000 down. Because the denominator is your cash rather than the price, borrowing more can raise this figure while raising risk just as fast.
Open the Cash-on-Cash Return and follow the settings and checks below.
What goes in
| Setting | What it means |
|---|---|
| Formula | Annual pre-tax cash flow ÷ total cash invested |
| Cash invested | Deposit + closing costs + initial works |
| Includes | Mortgage payments — unlike cap rate |
| Default purchase / down | 300,000 / 60,000 |
| Leverage | Raises the figure and the risk together |
| Pre-tax | Your tax position is not modelled |
| Excludes | Capital growth and principal paydown |
| Is this advice? | No |
How to use it
- Enter the purchase price and your actual cash in — including closing costs.
- Enter rent and all costs including the mortgage payment.
- Read the return on your own money, and note it is before tax.
Practical advice
Include closing costs in the cash invested, not just the deposit. Legal fees, taxes, surveys and initial repairs routinely add several percent of the purchase price, and leaving them out inflates the return on a figure that was never the real outlay. It is the commonest way a first model comes out too optimistic.
Common questions
How is this different from cap rate?
Cap rate measures the property and ignores financing. Cash-on-cash measures your money and includes the mortgage. The same building gives different cash-on-cash figures to a cash buyer and a leveraged one, which is the point.
Does more leverage mean better returns?
It can raise the percentage, because the denominator shrinks. It also raises risk in the same motion — a vacancy or a rate rise is far more dangerous when the mortgage is large. A high figure achieved through heavy borrowing is not the same as a high figure achieved through a good purchase.
What is missing?
Capital growth, mortgage principal paydown and your tax position. It measures cash in the year, which is why an investor might accept a low figure on a property expected to appreciate.
What is a good number?
That depends on your market, your alternatives and your risk tolerance, none of which a calculator can see. Compare against what your money could do elsewhere, and take advice before committing.
Useful next tools
- Cap Rate Calculator — Capitalisation rate from income and property value.
- Rental Yield — Gross and net yield on a rental property.
- Closing Costs Estimator — Estimate the fees on top of the purchase price.
- Rent vs Buy — Compare renting against buying over your real time horizon.
- Mortgage Payoff — How much time and interest extra payments save.
- Investment Growth Calculator — Project an investment with monthly contributions and returns.
Vootkit provides general educational estimates, not mortgage, investment, legal, valuation or financial advice. Lending rules, taxes, transaction costs and property markets vary. Check actual offers and consult appropriately licensed professionals before acting.
Try the tools from this guide
Keep reading
How to Estimate Home-Buying Closing Costs
Estimates the one-off costs of completing a purchase from percentages you set, defaulting to 1.5% and 0.75% components against a 350,000 price.
How Much House Can You Actually Afford?
Estimates the property price your income supports, from your deposit, existing debt payments and a debt-to-income limit.
How Extra Payments Change Your Mortgage Payoff Date
Shows how extra payments shorten the term and reduce total interest, from a 240,000 balance at 6.5% by default.