Rental Property Cap Rate & Cash Flow
Calculate Net Operating Income, Cap Rate, annual cash flow, and Cash-on-Cash Return for a rental property from price, rent, expenses, and financing.
Purchase
Income & expenses
Operating expenses = property tax, insurance, maintenance reserve, management fees, and HOA combined — everything except the mortgage payment itself.
Net Operating Income
$16,800/yr
Cap Rate
6.72%
Annual cash flow
$4,800/yr
Cash-on-Cash Return
8.73%
Cap Rate measures return based on the full purchase price (as if paid in cash), independent of financing. Cash-on-Cash Return measures return on the actual cash invested (down payment + closing costs), accounting for the mortgage payment — the two can tell very different stories about the same property.
About this tool
How to use it
- Enter the purchase price, down payment, and closing costs.
- Enter expected monthly rent, a vacancy rate (the % of the year the unit might sit empty between tenants), and monthly operating expenses (tax, insurance, maintenance, management, HOA combined — not the mortgage).
- Enter the monthly mortgage payment (principal + interest) if financed, or leave it at $0 for an all-cash purchase.
- Read Cap Rate and Cash-on-Cash Return together — they answer different questions and can disagree.
Why it matters
Cap Rate and Cash-on-Cash Return can tell very different stories about the same property: Cap Rate measures the return on the full purchase price, as if paid entirely in cash, so it's useful for comparing properties independent of how each is financed. Cash-on-Cash Return measures the return on the actual cash put in, after the mortgage payment — a highly leveraged deal can have an excellent cash-on-cash return with a mediocre cap rate, or vice versa.
When to use it
Comparing two rental properties against each other on a like-for-like basis (Cap Rate). Evaluating whether a specific financing structure makes a deal worth doing with the cash actually available (Cash-on-Cash Return). Sanity-checking a deal a seller or agent is presenting with their own numbers.
Good to know
Net Operating Income (NOI) = effective gross income (rent, less vacancy) minus operating expenses — deliberately excluding the mortgage payment, since NOI is meant to measure the property's own performance independent of financing. Cap Rate = NOI ÷ purchase price. Cash-on-Cash Return = annual cash flow (NOI minus annual mortgage payments) ÷ cash actually invested (down payment + closing costs). This model doesn't include appreciation, tax benefits (depreciation, deductions), or a loan's principal paydown as part of return — all of which real investors often factor in separately. Treat this as a starting screening calculation, not a complete investment analysis.
Common questions
What's a 'good' Cap Rate?
This varies enormously by market, property type, and risk tolerance — a lower cap rate is common in higher-demand, lower-risk markets, and a higher cap rate often reflects higher risk or a less desirable location. There's no single universal 'good' number; compare a property's cap rate to similar properties in the same market.
Why is my Cash-on-Cash Return so different from my Cap Rate?
This is expected with financing — Cap Rate ignores the mortgage entirely, while Cash-on-Cash Return is calculated after the mortgage payment and divided by only the cash you put in, not the full price. Leverage amplifies returns (in both directions), which is exactly why the two numbers diverge on a financed deal.
Why isn't the mortgage payment part of operating expenses?
Net Operating Income is meant to represent how the property itself performs, independent of how any particular buyer chooses to finance it — two buyers paying different mortgage rates on the identical property would otherwise get different NOI and Cap Rate figures for the exact same asset, which defeats the point of using Cap Rate to compare properties.
Does this include appreciation or tax benefits?
No — this calculates operating cash flow returns only. Property appreciation, depreciation tax deductions, and loan principal paydown are real components of total real estate return that many investors track separately, but they aren't part of Cap Rate or Cash-on-Cash Return by definition, and aren't modeled here.
Is this investment advice?
No — this is a standard real estate financial calculation using the numbers you provide. It doesn't assess market risk, property condition, location quality, or any of the other factors that go into a real investment decision.