Rental Property Calculator Guide
Run the same rental through the rental property calculator with two different down payments and you'll notice something odd: the cap rate never moves, but the cash-on-cash return swings wildly. That's not a bug — it's the entire reason serious investors track both numbers instead of picking one and calling it a day. If you haven't run a property through the calculator yet, do that first; this article assumes you're already looking at a set of results and trying to decide what they actually mean for your purchase decision.
Why the Two Numbers Can Disagree
Cap rate ignores your loan entirely — it's net operating income divided by purchase price, full stop. So a $300,000 duplex with a 6% cap rate has a 6% cap rate whether you pay all cash or put 10% down. Cash-on-cash return, by contrast, is built entirely around your financing. Put down $60,000 instead of $150,000 on that same property and your annual cash flow doesn't change much, but you're dividing it by a much smaller invested amount — so the cash-on-cash return jumps. This is leverage doing its job: borrowed money amplifies your return on the cash you actually put in, for better or worse. The catch is that leverage cuts both ways. A property with thin margins can show an attractive cash-on-cash number purely because the down payment was small, while the underlying asset — measured by cap rate — is mediocre. Relying on cash-on-cash alone can make a weak property look like a strong deal simply because you financed it aggressively.
A Worked Example
Say a property has a $24,000 annual NOI on a $300,000 purchase price — an 8% cap rate, comfortably above average for most markets. Finance it with 20% down ($60,000, plus closing and repair costs) and a mortgage payment that eats $18,000 of that NOI annually, and you're left with $6,000 in annual cash flow. Against roughly $70,000 in total cash invested, that's under a 9% cash-on-cash return — decent, but not dramatically better than the cap rate. Now compare it to a second property with a lower 5.5% cap rate but a seller offering owner financing at a below-market rate with only 10% down. The weaker property, purely on NOI-to-price terms, might produce a higher cash-on-cash return simply because less of your own money is tied up. Neither number is "wrong" — they're answering different questions. Cap rate tells you whether the asset itself is priced well; cash-on-cash tells you whether this particular financing structure makes it a good use of your capital right now.
Which One Should Drive the Decision
Use cap rate to compare properties against each other and against the broader market, since it strips out financing and lets you judge the real estate on its own merits — this is the number appraisers and institutional buyers lean on. Use cash-on-cash to judge whether a specific deal, with its specific loan terms, is a good use of the money you're personally putting at risk. If you're deciding between buying this rental outright versus continuing to invest that cash elsewhere, it's worth running the numbers through the investment calculator or comparing against a simple compound interest calculator projection at a conservative market return — real estate needs to clear that bar, not just beat zero. And because so much of the cash-on-cash number depends on your loan terms, it's worth shopping rates carefully; the mortgage calculator can show how even a half-point rate difference reshapes the monthly payment and, by extension, your return. One caution: both metrics are point-in-time snapshots based on year-one numbers. They don't account for rent growth, refinancing, or the tax treatment of depreciation and mortgage interest, which can meaningfully change your real return — for anything beyond a rough screen, especially decisions involving financing structure or tax strategy, a real estate-savvy accountant or lender can save you from an expensive miscalculation. For the simpler, financing-agnostic first pass on evaluating any investment property purchase, the real estate calculator guide covers that broader framing.