Real Estate Tax Calc
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.
The exact formula, restated
Cash-on-cash return has a deliberately simple structure: annual pre-tax cash flow ÷ total cash invested. The numerator is what lands in your pocket over a year after operating expenses and the full mortgage payment (principal and interest), but before income taxes. The denominator is every dollar of your own money that went into acquiring and stabilizing the property — down payment, closing costs, and upfront repairs — not the purchase price and not the loan amount. Two properties with identical prices can post very different cash-on-cash returns purely because of how much cash each required. Keep the two halves of the ratio consistent: pre-tax cash flow over out-of-pocket cash, every time.
A positive-cash-flow version of the same deal
Change three inputs and the sign flips. Suppose you negotiate the price to $300,000, put 30% down ($90,000), and the local rent supports $2,650/month ($31,800/year). The loan is $210,000 at 7.25% over 30 years — about $1,433/month, or $17,196/year. Keep the same expense ratios: vacancy 8% ($2,544), management 9% ($2,862), taxes and insurance $4,200, maintenance $2,000, CapEx reserve $1,500 — total operating expenses $13,106, so NOI is $31,800 − $13,106 = $18,694. Subtract debt service: $18,694 − $17,196 = $1,498 of annual pre-tax cash flow. With cash invested of $90,000 + $7,000 closing + $6,000 repairs = $103,000, cash-on-cash = $1,498 ÷ $103,000 = 1.5%. Positive, but thin — a useful reminder that clearing break-even is not the same as a strong return.
Break-even rent for the original property
It is worth solving for the rent that would zero out the first example. Operating expenses that scale with rent (vacancy 8% and management 9% = 17% of gross) plus the fixed costs ($4,200 + $2,000 + $1,500 = $7,700) must, together with the $21,492 of debt service, equal gross rent. Setting gross rent = R: R − 0.17R − $7,700 − $21,492 = 0, so 0.83R = $29,192, and R ≈ $35,171/year, or about $2,931/month. That is roughly $531 more per month than the assumed $2,400 — a concrete measure of how far underwater the deal is at current rents, and exactly the kind of target you can check against comparable listings before you buy.
How sensitive the result is to each input
Small changes move the answer a lot when cash flow is thin. Starting from the original −$5,288: adding $100/month of rent ($1,200/year, less ~17% variable costs ≈ $996 net) improves cash flow by about $996 and lifts the return by roughly 1 percentage point on $104,500 of cash. Dropping the interest rate from 7.25% to 6.25% cuts the monthly payment on $262,500 by about $173, or ~$2,076/year, worth roughly 2 points of cash-on-cash. Raising the down payment reduces the loan and payment but also enlarges the denominator, so it improves monthly cash flow while diluting the percentage return — a trade-off, not a free win. Because the metric is a ratio, always note which lever you are pulling and what it does to both the numerator and the denominator.
What this number leaves out
Cash-on-cash is a first-year, pre-tax snapshot — powerful for comparing deals quickly, but incomplete. It excludes principal paydown (the part of each mortgage payment that builds your equity, funded by the tenant), appreciation, and the tax effects of depreciation, which frequently turn a cash-negative property into an after-tax winner for investors who can use the paper loss. It also uses year-one figures, so it says nothing about rent growth or the eventual sale. Treat cash-on-cash as the entry point to a fuller analysis: layer in an after-tax cash-flow adjustment, then move to total return or internal rate of return (IRR) over your expected hold to judge the investment as a whole.
Turning the negative deal after-tax
Return to the original property with its −$5,288 pre-tax cash flow, and add the tax picture that cash-on-cash ignores. Land aside, suppose the depreciable building basis is $280,000; straight-line over 27.5 years is about $10,182 of annual depreciation. Layer that onto the deductible operating expenses and the mortgage interest (most of the $21,492 payment in year one is interest, say ~$18,900), and the property's taxable result is deeply negative — a paper loss well beyond the $5,288 cash shortfall. For an investor who can use that passive loss (MAGI under the $150,000 phase-out, active participation, or real estate professional status), a loss of roughly $13,000 at a 24% marginal rate saves about $3,100 in tax. That shrinks the real out-of-pocket cost from $5,288 to about $2,200 — the same deal looks very different once depreciation's shield is counted. This is exactly why a headline cash-on-cash number can understate a leveraged rental's true economics.
Adding equity build to see total return
Cash-on-cash also omits the wealth you accumulate silently. In year one, roughly $2,600 of the original property's mortgage payments go to principal (the payment minus the ~$18,900 of interest), reducing your loan balance dollar for dollar. That $2,600 is a real return on your $104,500 invested — about 2.5% — even though it never appears as cash flow. Add a modest 3% appreciation on a $350,000 property ($10,500) and the equity gains alone ($2,600 + $10,500 = $13,100) far outweigh the $5,288 cash shortfall. None of this is captured by cash-on-cash return, which is precisely why experienced investors pair it with a total-return view: cash flow, principal paydown, appreciation, and tax benefits together tell you whether a 'negative' cash-on-cash property is actually building wealth.
A quick checklist for running your own numbers
To reproduce this analysis on any property, gather eight inputs and work top to bottom. (1) Purchase price and your down payment. (2) Closing costs and upfront repairs — add these to the down payment for total cash invested. (3) Loan amount, rate, and term — compute the monthly principal-and-interest payment. (4) Gross annual rent. (5) A vacancy allowance (commonly 5–10%). (6) Management (often 8–10% of rent if you hire out). (7) Fixed costs — property taxes, insurance, HOA, and a maintenance and capital-expenditure reserve. (8) Subtract items 5–7 from gross rent for NOI, subtract annual debt service for pre-tax cash flow, and divide by total cash invested. Keep the reserves in even when a property is new; deferring maintenance in the model just hides costs you will pay later. Run the same template at two or three purchase prices and down payments to find your break-even and see how sensitive the return really is.
Comparing two deals on the same basis
The real payoff of a worked example is comparability. Imagine Property A (this $350,000 deal at −5.1%) against Property B, a $220,000 rental requiring $60,000 cash and throwing off $4,800 of annual cash flow — an 8.0% cash-on-cash return. On the headline metric, B wins decisively. But hold the comparison honestly: use the same vacancy, management, and reserve assumptions for both, and then look past cash-on-cash to the fuller picture — A may sit in a higher-appreciation market with stronger rent growth and a larger depreciation shield, while B delivers cash today. Cash-on-cash is the right first filter, but it should never be the only one. Standardize the inputs, compute the metric identically for every candidate, and then layer in taxes, equity build, and growth before you commit capital.
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.
What exactly goes in the denominator?
Only your out-of-pocket cash to acquire and stabilize the property — down payment, closing costs, and upfront repairs. Not the purchase price and not the borrowed loan amount. Keeping the denominator to actual cash invested is what makes the metric a return on your money.
Is principal paydown included in cash-on-cash return?
No. Cash-on-cash counts only the cash flow left after the full mortgage payment; the principal portion of that payment builds equity but is not in your pocket this year. To capture equity build and appreciation, use a total-return or IRR framework in addition to cash-on-cash.
How do I find my break-even rent?
Set gross rent equal to the sum of your fixed operating costs, your variable costs (which scale with rent), and your annual debt service, then solve for rent. In the example above, break-even worked out to about $2,931/month versus the $2,400 assumed — a clear signal the deal was underpriced on rent.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.