How to use the cap rate and cash-on-cash calculator
Two numbers decide whether a rental deal works, and they answer different questions. Cap rate measures the property itself: net operating income divided by what it costs to acquire, financing ignored. Cash-on-cash measures your position: pre-tax cash flow divided by the cash you actually wrote checks for.
Net operating income starts with gross rent, trims a vacancy and credit loss allowance, then subtracts operating expenses such as property tax, insurance, management, maintenance and reserves. Mortgage principal and interest stay out of NOI on purpose, which is what lets you compare a leveraged deal with an all-cash one.
The debt service coverage ratio shown here is the same figure lenders underwrite to. Many commercial and DSCR loan programs look for a ratio comfortably above 1.2, and the calculator flags the deals that fall short well before an appraisal does. Rates and terms are editable and reflect a September 2026 reference point.
This tool is for general reference and stays on a pre-tax basis. Depreciation, passive activity loss limits, state income tax and capital expenditures will move your real return, so review the numbers with a CPA or broker before committing.
Frequently asked questions
Cap rate divides net operating income by the total acquisition cost and ignores financing, so it compares properties on equal footing. Cash-on-cash divides pre-tax cash flow by the cash you actually put in, so it shows what leverage does to your return.
Debt service coverage ratio is net operating income divided by annual mortgage payments. Commercial and DSCR loan programs commonly want a ratio above 1.2, meaning the property earns comfortably more than the loan costs.
Yes. Operating expenses should include property tax, insurance, management, maintenance and reserves, but not mortgage principal and interest, which are handled separately as debt service.