The property and financing
Purchase price: $350,000. Down payment (25%): $87,500. Closing costs: $7,000. Initial repairs: $10,000. Total cash invested: $104,500. Loan: $262,500 at 7.25% over 30 years, yielding a monthly P&I payment of approximately $1,791.
Annual income and expenses
Gross rent: $2,400/month = $28,800/year. Deductions: Vacancy allowance (8%) $2,304; Property management (9%) $2,592; Taxes and insurance $4,200; Maintenance and repairs $2,000; CapEx reserve $1,500. Net operating income (NOI): $16,204. Annual P&I: $21,492. Annual pre-tax cash flow: $16,204 - $21,492 = -$5,288.
Reading the result
Cash-on-cash return = -$5,288 / $104,500 = -5.1%. This property is cash-flow negative at these numbers — a scenario common in many markets when interest rates are elevated relative to rental yields. A negative result does not make it a bad investment: depreciation, mortgage paydown, and appreciation may still produce a strong total return. But it does mean out-of-pocket monthly costs and the need for reserves. Lower the purchase price, increase the down payment, or wait for rents to grow to reach break-even. Use the calculator to model your own property.
Frequently asked questions
What is a typical cash-on-cash return on a rental?
It varies widely by market, leverage, and rates — from negative in expensive markets with high rates to 10%+ in lower-priced cash-flow markets. Many investors target 6-10% in stable markets.
Why is my cash-on-cash return negative?
High purchase prices, high interest rates, or low rents relative to expenses can all produce negative cash flow. Run the numbers at different purchase prices and down payment amounts to find the breakeven point.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.