You're earning $75,000 a year and sitting on some savings. A $350,000 duplex catches your eye—put 20% down ($70,000), finance the rest with a 30-year mortgage at 6.5% APR, and rent out both units. But here's the real question: is your money working hard enough? That same $70,000 could sit in your 401k with a 6% employer match, earning market returns without lifting a finger. The cash on cash return calculator cuts through the noise. It tells you exactly what percentage return you're getting on the actual cash you put down, so you can compare that rental to stocks, bonds, or keeping your money in a high-yield savings account.
How to Use
Enter your total cash invested—down payment, closing costs, and any renovation expenses. Then input your annual pre-tax cash flow (rent minus mortgage, taxes, insurance, and expenses). The calculator spits out your percentage return. Compare that number to other investments. If it's below 8-10%, you might want to rethink the deal or negotiate a better price.
Pro Tips
One: aim for at least 8-12% cash on cash return in most US markets—anything lower and you might be better off in index funds. Two: don't forget the tax perks. Depreciation can offset rental income on your IRS return, boosting your real returns even if cash flow looks thin. Three: compare apples to apples. Your 401k's 7-8% average annual return is passive; rental properties require work. Factor in your time. Four: run the numbers with current mortgage rates, not 2021's historic lows. A 6.5% APR dramatically changes your monthly payment compared to 3%.
Common Mistakes to Avoid
First, many investors forget to include all cash costs upfront. That $350,000 home needs more than just a $70,000 down payment—closing costs, appraisal fees, and initial repairs can add another $10,000-$15,000. Second, people underestimate expenses. Property taxes, insurance, and that inevitable water heater failure eat into returns. Budget 1% of the home's value annually for maintenance. Third, ignoring vacancy. Even in hot markets, tenants leave. Factor in at least one vacant month per year when calculating your actual cash flow.
Frequently Asked Questions
What's a good cash on cash return for US rental properties?
Most experienced investors target 8-12% or higher. If you're putting $70,000 down on a property, you'd want at least $5,600-$8,400 in annual cash flow. Anything below 5% rarely justifies the hassle and risk compared to passive investments.
How is cash on cash return different from ROI?
Cash on cash only measures return on actual cash invested. ROI includes appreciation and loan paydown. If your $350,000 property appreciates 3% annually ($10,500), your ROI looks great even with zero cash flow—but you can't spend appreciation until you sell.
Should I count my 401k match when comparing investments?
Absolutely. A 6% employer match on a $75,000 salary is $4,500 of free money annually. That's an instant 100% return on your contribution dollars before any market gains. Hard for real estate to beat that.