A worked example
A $300,000 property earning $28,800 a year in rent against $8,000 in expenses has a cap rate of about 6.93%. With a $60,000 down payment and an $18,000/year mortgage payment, cash-on-cash return comes to roughly 4.67% — or about 19.67% total return once 3% appreciation is included.
Frequently asked questions
Why are cap rate and cash-on-cash return different numbers?
Cap rate ignores financing entirely — it measures the property's return as if bought outright in cash. Cash-on-cash return only looks at your actual cash invested (the down payment), so financing leverage can push it well above or below the cap rate.
What's a 'good' cap rate?
It varies enormously by market and property type — markets with strong appreciation tend to have lower cap rates (since price is bid up relative to rent), while higher-cap-rate markets often trade some appreciation potential for stronger current cash flow.
This calculator provides estimates for general informational purposes only and is not investment advice.