Cash-on-cash return is annual pre-tax cash flow divided by the cash you actually put in — down payment, closing costs, and rehab. It is the only metric in this group that moves when your loan changes. On this calculator's own $350,000 prefill, financed at the Freddie Mac 30-year average for the week of 09/03/2026 (6.71%), the deal is cash-flow negative: −0.83%. Change the loan and this number changes with it.
How this calculator gets from rent to a return on your cash
Cash-on-cash return = annual pre-tax cash flow ÷ cash invested. Cash invested is down payment plus closing costs plus any upfront rehab — every dollar of your own money that goes into the deal before a tenant ever pays rent. Cash flow is net operating income (gross rent, less a vacancy allowance, less operating expenses) minus your annual mortgage payments. This module has no 50%-rule shortcut; it always wants a real vacancy percentage and a real operating-expense figure, because a mortgage payment is exact and averaging the other side would make the final subtraction meaningless.
The mortgage payment itself comes from a standard amortization formula — principal, rate, and term, compounded monthly. That is the one piece of arithmetic cap rate never performs, and it is why the two ratios can disagree sharply on the exact same property.
The worked example: national-average financing turns this deal negative
Run the calculator's own prefill start to finish. Purchase price $350,000, 25% down ($87,500), $9,000 closing costs, $5,000 rehab — cash invested totals $101,500. The loan is $262,500. Rent is $2,500 a month ($30,000 a year); with a 5% vacancy allowance and $9,000 in annual operating expenses, NOI is $19,500.
That is not a contrived scenario — it is this calculator's own default numbers, run through this calculator's own arithmetic, financed at the mortgage rate that was current the week this page was last checked. The property's NOI ($19,500) is smaller than what a 6.71% loan on it costs ($20,347), so every month of ownership pulls a small amount of cash out of the investor's pocket rather than putting any in. That is negative leverage, and it's the reverse side of the same fact the cap rate calculator shows on this identical property: an unlevered cap rate of 5.57% sitting below a 6.71% cost of debt.
A bigger down payment doesn't act the way people expect
Putting more cash down shrinks the loan, which shrinks the mortgage payment, which improves cash flow — that part is intuitive. What isn't intuitive is what it does to the return, because the denominator grows at the same time the numerator improves.
| Down payment | Loan amount | Annual debt service | Cash invested | Annual cash flow | Cash-on-cash |
|---|---|---|---|---|---|
| 25% ($87,500) | $262,500 | $20,347 | $101,500 | −$847 | −0.83% |
| 35% ($122,500) | $227,500 | $17,634 | $136,500 | $1,866 | 1.37% |
| 50% ($175,000) | $175,000 | $13,565 | $189,000 | $5,935 | 3.14% |
NOI held constant at $19,500 (5% vacancy, $9,000 opex). Closing costs $9,000 and rehab $5,000 held constant across all three rows.
Cash flow turns positive between 25% and 35% down on this specific deal, and the return keeps climbing as more cash goes in — but that is this property's arithmetic, not a rule. On a deal with a wider cap-rate-to-mortgage-rate gap, cash-on-cash can peak at a modest down payment and then decline as additional cash gets tied up for smaller and smaller improvements to the payment. There is no substitute for running your own numbers at your own down payment.
A lower rate can still produce a worse return
Freddie Mac's PMMS for the week ending 09/03/2026 quotes both a 30-year fixed rate (6.71%) and a 15-year fixed rate (6.04%) — a genuinely lower rate. Financing the $262,500 loan from the worked example above on the 15-year instead looks like a clear improvement on paper. It isn't, for cash flow:
| Term | Rate | Monthly P&I | Annual debt service | Annual cash flow | Cash-on-cash |
|---|---|---|---|---|---|
| 30-year | 6.71% | $1,695.60 | $20,347 | −$847 | −0.83% |
| 15-year | 6.04% | $2,220.80 | $26,650 | −$7,150 | −7.04% |
Cash invested held at $101,500. NOI held at $19,500.
The 15-year loan carries a lower rate but forces roughly twice the principal to amortize in half the time, so the monthly payment is over $500 higher and the cash-on-cash return collapses from a small loss to a large one. Rate alone never tells you the payment — term does at least as much work, and this is exactly the kind of interaction cap rate can't show you because cap rate never sees either number.
The vacancy field is a lever, not a formality
The worked example above used a 5% vacancy allowance — this calculator's default. The Census Bureau's Housing Vacancy Survey measured the actual national rental vacancy rate at 7.3% for Q2 2026. Carrying that figure into the same $350,000 deal at 6.71% instead of 5% drops NOI to $18,810 and pushes the annual cash flow to −$1,537 — a cash-on-cash return of −1.51%, worse than the −0.83% the 5% default produces. Because cash-on-cash divides by a fixed cash-invested figure, every dollar the vacancy assumption removes from NOI comes straight off the return with no cushion from a larger denominator.
What a year-one cash-on-cash number doesn't capture
A negative or thin cash-on-cash return in year one is not automatically a bad investment — it's an incomplete one. This figure excludes three things that can matter more than the monthly check: principal paydown (every mortgage payment converts a slice of debt into equity, whether or not the check is positive), rent growth (the BLS CPI rent-of-primary-residence index rose 2.9% over the 12 months to July 2026, and a fixed mortgage payment against rising rent narrows a cash-flow gap over time), and appreciation, which this calculator does not estimate or forecast in any form.
Weigh those against the fact that a persistent negative cash flow is a real monthly bill you have to fund from somewhere else — it doesn't resolve itself just because the thesis is paydown-and-appreciation. Read the cap rate vs. cash-on-cash guide for how these two numbers are meant to be read together, and use the DSCR calculator to check whether a lender would even approve the loan behind this scenario in the first place.
Methodology
All figures are produced by this calculator's own module (calculateCashOnCash): loan amount = price − down payment; monthly P&I from a standard amortizing-loan formula; annual NOI = (monthly rent × 12 × (1 − vacancy%)) − annual operating expenses; annual pre-tax cash flow = NOI − annual debt service; cash-on-cash = cash flow ÷ (down payment + closing costs + rehab). The worked examples use the calculator's own $350,000 / $2,500-per-month / $9,000-opex / 25%-down prefill. Interest rates are quoted directly from Freddie Mac's PMMS for the week ending 09/03/2026 and were not blended, averaged, or adjusted.
Sources
- Freddie Mac — Primary Mortgage Market Survey, week ending 09/03/2026 — accessed 2026-09-07
- U.S. Bureau of Labor Statistics — CPI, Rent of Primary Residence — accessed 2026-09-07
- U.S. Census Bureau — Housing Vacancy Survey, Q2 2026 — accessed 2026-09-07