The formulas
Net operating income (NOI) = (monthly rent × (1 − vacancy) − monthly operating costs) × 12. Operating costs are property tax, insurance, management fees, repairs, service charges and utilities you pay — not the mortgage.
Cap rate = NOI ÷ purchase price. Monthly cash flow = rent after vacancy − operating costs − mortgage payment. Cash-on-cash return = annual cash flow ÷ cash invested, where cash invested is the down payment plus closing costs. The mortgage payment uses the standard amortising-loan formula.
A worked example
A house bought for 300,000 with 9,000 of closing costs and 25% down leaves a 225,000 loan. At 6.5% over 30 years, the payment is about 1,422 a month. The rent is 2,400, so with 5% vacancy the expected monthly income is 2,280; operating costs are 650 a month.
NOI is (2,280 − 650) × 12 = 19,560, a cap rate of 6.5%. Monthly cash flow is 2,280 − 650 − 1,422 ≈ 208, or about 2,494 a year, on 84,000 of cash invested: a cash-on-cash return of roughly 3.0%. The gap between the two figures is the cost of financing at that rate — exactly the kind of thing worth seeing before you buy.
What is a good return on a rental property?
There is no single answer, because it depends on interest rates, the market and how much risk and work you accept. As rough reference points, many investors look for a cap rate at or above the mortgage interest rate, and for positive cash flow with a margin for repairs and empty months. Cash-on-cash targets vary widely; compare the result with what the same cash would earn elsewhere at similar risk.
Two things the calculator leaves out on purpose: appreciation and tax. Both can dominate the long-run return, but both are uncertain and personal. For a longer view including IRR over a holding period, model the expected sale price separately. If you already own several rentals, software for real estate investors covers tracking them side by side.
From projected return to measured return
Projections are only as good as the costs you remembered to include. After you buy, the useful number is what the property actually earned. Recording every rent payment and expense against the property in reports turns this calculation into a measured one, and the rental yield calculator is a quicker screen for comparing listings before you get to the financing.
Common questions
What is the difference between cap rate and cash-on-cash return?
Cap rate compares net operating income with the purchase price and ignores financing. Cash-on-cash return compares the cash left after the mortgage with the cash you actually put in, so it changes with your loan terms.
What is a good cash-on-cash return for a rental?
It depends on rates and the market. Compare it with what the same cash would earn elsewhere at similar risk, and make sure monthly cash flow stays positive with room for repairs.
Should I include the mortgage in operating costs?
No. Operating costs exclude debt payments. The calculator subtracts the mortgage separately for cash flow and cash-on-cash return.
Does this calculate IRR?
No. IRR needs an assumed sale price and holding period. This tool covers the year-one figures most investors check first.
Done by hand once. Done automatically from now on.
Track each property's real income, costs and cash flow once you own it.