The formula
How it works
Assess whether a rental property makes a good investment. The calculator works out the monthly cash flow, the capitalisation rate and the cash-on-cash return from the price, financing, rent and expenses.
FAQ
What is a cap rate?
The capitalisation rate is the annual net operating income divided by the purchase price, as a percentage. It measures the property’s return ignoring financing, making it useful for comparing properties on a like-for-like basis.
What is cash-on-cash return?
It is your annual cash flow divided by the actual cash you invested — mainly the down payment. Because it accounts for the mortgage, it shows the real return on the money you put in, which can be much higher than the cap rate.
What should I include in monthly expenses?
Property tax, insurance, maintenance, an allowance for vacancy, management fees and any HOA dues all belong in this figure. Leaving out a cost like vacancy or maintenance will make the projected cash flow look better than it is likely to be in practice.
How does the down payment affect the numbers?
A bigger down payment lowers the loan and the mortgage payment, which usually improves monthly cash flow, but it also ties up more cash, which tends to pull the cash-on-cash return down. The cap rate is unaffected either way, since it ignores financing entirely.
What is a good cap rate?
It depends on the market and the amount of risk you are willing to take, but many investors look for roughly 5–10%, with lower rates typical in safer, high-demand areas and higher rates in riskier or slower-growth ones. Compare properties in the same area rather than relying on one universal number.
What does negative cash flow mean?
It means the rent does not cover the mortgage and expenses, so you would need to add money out of pocket every month to keep the property running. Some investors accept this short term for appreciation or tax benefits, but it raises the risk if rents fall or costs rise.
Why does leverage matter for rental returns?
Financing part of the purchase with a mortgage lets you control the whole property with less of your own cash, which can boost the cash-on-cash return well above the cap rate. The trade-off is that a mortgage payment also makes cash flow more sensitive to vacancies or rate changes.
About the rental property calculator
This calculator helps you judge whether a rental property is a sound investment. It pulls together the purchase price, the mortgage, the rent it earns and the running costs to produce the three numbers investors care about most: monthly cash flow, capitalisation rate and cash-on-cash return. Together these show whether the property pays for itself each month and how well your invested cash is working.
How to use it
Enter the purchase price, your down payment percentage, the mortgage rate and term, the monthly rent and your monthly running expenses. The calculator returns the mortgage payment, the monthly and annual cash flow, the cap rate and the cash-on-cash return. For example, a $250,000 property with 25% down, renting for $2,000 with $500 of expenses, shows at a glance whether it produces positive cash flow.
The formula
Monthly cash flow is . The cap rate is the annual net operating income (rent minus expenses, before the mortgage) divided by the purchase price. The cash-on-cash return is the annual cash flow divided by the cash you invested — chiefly the down payment. Each ratio views the return through a different lens, and together they capture the deal’s quality.
Where it is used
Property investors use it to screen deals quickly and to compare one rental against another before making an offer. Lenders and agents reference the same metrics, and cash flow and cap rate are the language of real-estate investing. Running the numbers before buying is essential, because a property that looks attractive on rent alone can lose money once the mortgage and expenses are counted.