Rental Cap Rate & Cash-on-Cash Calculator
Example: Purchase price: 300000 $ · Monthly rent: 2400 $ · Vacancy allowance: 6 % · Annual operating expenses: 9000 $ · Cash invested (down + costs): 75000 $ · Monthly mortgage payment: 1420 $
| Cap rate | 6.02% |
| Net operating income | $18,072 |
| Cash-on-cash return | 1.38% |
Worked example
A $300,000 rental at $2,400 a month brings $28,800 a year, less a 6% vacancy allowance leaves about $27,070. Subtract $9,000 of operating expenses and net operating income is roughly $18,070, a cap rate near 6.0%. With $75,000 of cash invested and a $1,420 monthly mortgage ($17,040 a year), annual cash flow is about $1,030, a cash-on-cash return around 1.4% — a reminder that a decent cap rate can still leave thin cash flow once financing is layered on.
Frequently asked questions
What is a good cap rate?
It varies by market and property class, but many investors look for cap rates in the range of 5 to 10%. Lower cap rates often signal pricier, lower-risk markets; higher cap rates can mean cheaper property but more risk. Compare within the same market rather than across very different ones.
How is cash-on-cash different from cap rate?
Cap rate ignores your mortgage and measures the property's return on its full price. Cash-on-cash measures return on just the cash you invested, after debt service, so it reflects the effect of leverage — and can look very different when financing is expensive.
What should I include in operating expenses?
Property taxes, insurance, maintenance and repairs, property management, utilities you pay, HOA dues, and a capital-reserve allowance. Do not include the mortgage in operating expenses — it is financing, handled separately in the cash-on-cash calculation.
Why include a vacancy allowance?
No rental stays occupied 100% of the time. Subtracting a vacancy allowance — often 5 to 10% — gives a realistic income figure. Skipping it overstates both your cap rate and your cash flow.