Rental Property ROI Calculator

Two rental property calculators can hand you two different-looking numbers from the exact same deal, and both can be correct. The confusion almost always comes down to one question: does the number include the mortgage payment or not? Cap rate and cash-on-cash return answer that question differently on purpose, because they're built to answer different questions.

Cap Rate: The Property's Number, Not Your Number

Cap rate is calculated as annual net operating income, rent collected minus operating expenses like property tax, insurance, maintenance, management, and a vacancy allowance, divided by the purchase price. Notice what's missing: the mortgage payment never enters the formula. That's intentional. Cap rate is meant to describe how much income a property generates relative to its price, independent of how any particular buyer chooses to finance it, which is exactly what lets you compare a $250,000 duplex against a $600,000 fourplex on equal footing, regardless of down payment size or interest rate.

Cash-on-Cash Return: Your Number, Financed Deal Included

Cash-on-cash return starts from a different place: your actual annual cash flow, rent minus operating expenses and minus the mortgage payment, divided by the actual cash you put in, your down payment plus closing costs. This is a levered return, meaning it fully reflects your financing decisions. Two people buying the same property with different down payments or different loan rates will get different cash-on-cash returns even though the property's cap rate is identical for both of them, because this metric measures the return on your invested dollars, not the property's underlying performance.

Worked Example: A $250,000 Duplex

Purchase price $250,000, 25% down ($62,500), $6,000 closing costs, a 7% 30-year loan, $2,200 monthly rent, $3,000/year property tax, $1,200/year insurance, 10% maintenance, 8% property management, and 5% vacancy allowance (no HOA):

• Loan amount: $250,000 − $62,500 = $187,500.
• Monthly mortgage payment (P&I): $1,247.44.
• Monthly operating expenses (tax + insurance + maintenance + management + vacancy, excluding the mortgage): $250 + $100 + $220 + $176 + $110 = $856.00.
• Monthly cash flow: $2,200 − $1,247.44 − $856.00 = $96.56. Annual cash flow: $1,158.69.
• Cap rate (unlevered, no mortgage in the formula): (($2,200 × 12) − ($856 × 12)) ÷ $250,000 = $16,128 ÷ $250,000 = 6.45%.
• Cash-on-cash return (levered, mortgage included): $1,158.69 ÷ ($62,500 + $6,000) = $1,158.69 ÷ $68,500 = 1.69%.

This deal illustrates the split well: a respectable 6.45% cap rate against a thin 1.69% cash-on-cash return. The property itself performs reasonably on an unlevered basis, but at this specific price, rate, and down payment, very little of that performance is translating into actual cash back on the investor's cash outlay, mostly because the mortgage payment is consuming almost the entire monthly margin between rent and expenses.

This Calculator vs. the Mortgage Payment and Rent vs. Buy Calculators

This tool is built for investment analysis: evaluating whether a specific rental property purchase makes sense as an income-producing asset. It is not the same question as the Rent vs. Buy Calculator, which answers a personal housing decision, whether you should rent or buy the home you yourself would live in, and has no concept of cap rate or cash-on-cash return because it isn't analyzing an investment. If you just need to isolate and test the mortgage payment itself, different loan amounts, rates, or terms, the Mortgage Payment Calculator is the more direct tool for that single number.

Further reading: Investopedia — Capitalization Rate and Wikipedia — Cash-on-Cash Return.