What is a good cash-on-cash return?

Many investors look for 8% to 12%, but targets depend on the market, the property's risk and how much appreciation you expect.

Why include vacancy if the unit is rented?

Tenants move out, and turnover takes time and money. Budgeting a vacancy allowance, often 5% to 10%, keeps projections honest.

What's the difference between cap rate and cash-on-cash return?

Cap rate compares NOI with the price and ignores financing, so it's useful for comparing properties. Cash-on-cash return compares your cash flow after the mortgage with the cash you actually put in, so it shows how a loan changes your return.

A quick screen that says monthly rent should be at least 1% of the purchase price. It ignores taxes, insurance, repairs and financing, so use it only to decide which properties deserve a full analysis like this one.

Investing & distressed property

Rental Property ROI Calculator

Run the numbers on a buy-and-hold rental. Enter the purchase, financing, rent and expenses to see monthly cash flow, net operating income, cap rate, cash-on-cash return and a five-year return that counts appreciation and loan paydown.

Monthly cash flow

$102

$1,223 a year on $78,500 invested

Net operating income (yr 1): $16,192
Cap rate: 6.5%
Cash-on-cash return: 1.6%
5-year total ROI: 31.7%

$2,098monthly costs

Mortgage: $1,247
Property tax: $250
Insurance: $117
Maintenance: $176
Management: $176
Vacancy: $132
HOA & other: $0

5-year cash flow projection

Year	Gross rent	Operating expenses	NOI	Mortgage	Cash flow
1	$26,400	$8,624	$16,192	$14,969	$1,223
2	$26,928	$8,708	$16,604	$14,969	$1,635
3	$27,467	$8,795	$17,024	$14,969	$2,055
4	$28,016	$8,883	$17,452	$14,969	$2,483
5	$28,576	$8,972	$17,889	$14,969	$2,920

How the returns are calculated

The formula

Effective income (year 1)

Effective income = 12 × Rent × (1 − Vacancy rate) + 12 × Other income

Rent: Monthly rent for the property
Vacancy rate: The share of the year you expect the unit to sit empty
Other income: Monthly income such as parking, laundry or pet fees

Operating expenses

Operating expenses = Tax + Insurance + 12 × (HOA + Other) + Gross rent × (Maintenance % + Management %)

Tax, Insurance: Annual property tax and insurance
HOA, Other: Monthly HOA dues and other monthly expenses
Gross rent: A full year's scheduled rent, before vacancy

Net operating income

NOI = Effective income − Operating expenses

Cap rate

Cap rate = NOIPurchase price × 100

Annual cash flow

Cash flow = NOI − Annual mortgage payments

Annual mortgage payments: 12 months of principal and interest on the loan (price minus down payment)

Cash-on-cash return

Cash-on-cash return = Cash flowCash invested × 100

Cash invested: Down payment + closing costs + upfront repairs

Five-year ROI

Five-year ROI = Five years of cash flow + Sale proceeds − Cash investedCash invested × 100

Five years of cash flow: Cash flow for years 1 to 5, with rent rising by your rent growth rate each year
Sale proceeds: Purchase price grown by your appreciation rate for five years, less selling costs and the loan balance still owed

The monthly cash flow, NOI, cap rate and cash-on-cash return are first-year figures. Vacancy is taken off the rent before expenses, and maintenance and management are budgeted as a percentage of the full scheduled rent, since those costs don't stop when a unit sits empty.

NOI measures the property itself, so it leaves out mortgage payments; cap rate compares it with the price.
Cash flow is what's left after the mortgage, and cash-on-cash return compares it with the cash you put in: the down payment, closing costs and upfront repairs.
Five-year ROI assumes you sell at the end of year five. It adds five years of cash flow, with rent growing each year, to what you'd net from the sale after selling costs and paying off the loan, then measures the gain over your original cash against that cash.

Results are before income taxes and depreciation, which depend on your own tax situation.

Results are estimates for planning, not a loan offer or financial advice. Lenders, title companies and local rules set the actual figures.

Terms used in this calculator

Net Operating Income (NOI)InvestingNet operating income (NOI) is a rental property's yearly income minus its operating expenses, before mortgage payments, depreciation and income taxes. It is the basis for cap rate.Capitalization Rate (Cap Rate)InvestingCapitalization rate (cap rate) is a rental property's net operating income divided by its value or price. It shows the property's unleveraged annual return and is used to compare income properties.Cash-on-Cash ReturnInvestingCash-on-cash return is a property's annual pre-tax cash flow divided by the total cash the investor put in. It measures the yield on your own money after financing.BRRRR MethodInvestingThe BRRRR method is a rental investing strategy: buy a distressed property, rehab it, rent it, refinance based on the higher value, and repeat with the cash pulled out.Down PaymentMortgages & financingA down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.Loan-to-Value Ratio (LTV)Mortgages & financingLoan-to-value ratio (LTV) compares the size of a mortgage with the property's value. A lower LTV means more equity and less risk for the lender, which often brings better loan terms.Home EquityMortgages & financingHome equity is the portion of a property you own outright: its current market value minus everything owed on it. It grows as you pay down the loan and as the home's value rises.REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.

Ready to look at real foreclosures?

Browse foreclosures across the country on RealtyTrac, with property details, estimated values and foreclosure status.

Search foreclosures

Frequently Asked Questions

Guides to read next

How to Buy a Bank-Owned Home: A Step-by-Step GuideGuide · 6 min readBuying a bank-owned home looks like a regular purchase, but the seller is a lender with its own forms, deadlines and approval process. This guide walks through each step, from getting financing in place to closing, and points out where REO deals differ from a typical sale.Inspecting and Negotiating on a Bank-Owned (REO) PropertyGuide · 7 min readBank-owned homes are sold as-is, often after sitting vacant, so a thorough inspection is the most important step in the purchase. This guide covers how to get the home ready to inspect, what to look for, what banks will and will not negotiate and how to handle appraisal and title issues before closing.How to Finance a Foreclosure or Distressed PropertyGuide · 7 min readDistressed properties are harder to finance than move-in-ready homes. Condition, timing and the seller's terms all limit which loans will work. This guide matches financing options to each kind of distressed purchase and explains the trade-offs.

More calculators

Cap Rate CalculatorCap rate from income and expenses, or the price for a target cap rate.Fix and Flip CalculatorProfit, ROI and a 70% rule check on a flip.Mortgage CalculatorMonthly payment with taxes, insurance, PMI and an amortization schedule.Foreclosure Auction Bid CalculatorYour walk-away bid for a foreclosure auction.

Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.