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

Cap rate is net operating income divided by purchase price and ignores financing entirely — it describes the property. Cash-on-cash is annual cashflow divided by the cash you actually put in, so it changes with your deposit and your interest rate.

Should the mortgage be in operating costs?

No. Operating costs are what it takes to run the building — tax, insurance, management, repairs, voids. The mortgage is financing, and putting it in operating costs makes the cap rate wrong.

What operating cost percentage is realistic?

It depends on the property and who manages it, but if operating costs come to under a quarter of rent, check whether voids, maintenance and management are genuinely in there. The calculator flags it when they look thin.

Rental property ROI calculator

Cap rate, cash-on-cash and cashflow are three different numbers and get conflated constantly. This shows all three, because a property can look good on one and bad on another.

Purchase price

Deposit

Interest rate

0 is a real answer, not an error — the sheet uses a different formula for it.Loan term

years

Monthly rent

Monthly operating costs

Tax, insurance, management, repairs, void allowance. Not the mortgage.Closing costs

Up-front works

Monthly cashflow: -$21
Cash-on-cash: -0.3%
Cap rate: 5.6%

Mortgage $1,351 a month against $89,750 of your own money in. Cap rate ignores the loan entirely — it describes the building. Cash-on-cash describes your deposit. This property costs you $21 every month it is let.

The formulas

NOI = rent - operating costs (the mortgage is not an operating cost)

cap rate = annual NOI / purchase price

monthly cashflow = NOI - mortgage payment

cash invested = deposit + closing costs + up-front works

cash-on-cash = annual cashflow / cash invested

Cap rate describes the building and ignores how you paid for it. Cash-on-cash describes your deposit. Two buyers paying the same price with different loans get the same cap rate and very different cash-on-cash returns.

A worked example

A $285,000 property, 25% down at 6.5% over 30 years, letting for $1,950 a month with $620 of operating costs, plus $6,500 closing and $12,000 of works:

loan = 213,750 → payment = 1,351

NOI = 1,950 - 620 = 1,330/month → 15,960/year

cap rate = 15,960 / 285,000 = 5.6%

cashflow = 1,330 - 1,351 = -21/month

cash invested = 71,250 + 6,500 + 12,000 = 89,750

cash-on-cash = -252 / 89,750 = -0.3%

A 5.6% cap rate that loses money every month. Both numbers are true; only one of them is what lands in your account.

Assumptions and limits

No appreciation, no principal paydown and no tax treatment — those are real returns and none of them are cash this month.
Operating costs must include a void allowance and a repair reserve. Leaving them out is the most common way a deal models well and performs badly.
One rent, held flat. Rent reviews and rate changes need a year-by-year model.
This is arithmetic on your assumptions, not a valuation or investment advice.

Doing this more than once?

This prices one deal on assumptions. These track the property once you own it — including rent due against rent actually received, which is a gap this page cannot show.

Questions

What is the difference between cap rate and cash-on-cash return?: Cap rate is net operating income divided by purchase price and ignores financing entirely — it describes the property. Cash-on-cash is annual cashflow divided by the cash you actually put in, so it changes with your deposit and your interest rate.
Should the mortgage be in operating costs?: No. Operating costs are what it takes to run the building — tax, insurance, management, repairs, voids. The mortgage is financing, and putting it in operating costs makes the cap rate wrong.
What operating cost percentage is realistic?: It depends on the property and who manages it, but if operating costs come to under a quarter of rent, check whether voids, maintenance and management are genuinely in there. The calculator flags it when they look thin.

Last updated 22 August 2026.