The formula
How to calculate cash on cash return
Cash on cash return measures the annual cash a property generates against the cash you put in. Unlike yield, it accounts for the mortgage, which is what makes it the number leveraged investors actually use.
Include everything paid at purchase in the invested figure: deposit, stamp duty, legal fees, survey and refurbishment. Excluding them flatters the return, sometimes by several percentage points.
What to enter:
- Annual pre-tax cash flow — rent received less all operating costs and mortgage payments
- Total cash invested — deposit, stamp duty, legal fees and any refurbishment
No submit button: type and the answer moves. Your inputs end up in the link, so the page can be shared already filled in.
Some of the fields above will accept figures that seem unusual for your own situation, and that is deliberate: the formula behind cash on cash return works the same way regardless of scale, so the calculator does not stop you testing a hypothetical scenario a long way from your actual numbers — often the fastest way to see which input the result is most sensitive to.
Why cash on cash return matters
A calculation like this usually gets used at a decision point rather than out of curiosity — comparing two real options, checking a number a lender or adviser has quoted, or working out whether a plan that sounded fine in conversation still holds up once it is written down with actual figures. The maths itself is rarely complicated; what is hard is remembering which figures to use and in what order, which is exactly what a dedicated calculator is for.
It is also useful as a sense check before signing anything. A quote, an offer letter or a spreadsheet from someone else can contain an error, an optimistic assumption, or simply a different convention for rounding — running the same inputs through an independent calculator is a quick way to confirm a number before relying on it.
This kind of calculation rarely stands entirely alone. A cash on cash return figure usually feeds into a wider decision — how it compares with a competing offer, whether it fits inside a monthly budget, what it does to a longer-term plan — and the value of having it as an exact number rather than a rough guess is that those follow-on comparisons stop being guesswork too. Once one figure in a decision is precise, it is worth making the effort to get the others precise as well, rather than mixing an exact calculation with several estimates and treating the result as equally reliable.
A calculator like this one is often bookmarked and returned to repeatedly over months rather than used once, particularly for anything tied to an ongoing plan such as a mortgage, a savings goal or an investment being tracked. Because the figures live in the web address rather than only in memory, coming back to the same page with updated numbers is quicker than starting from a blank spreadsheet each time.
Worked example
Here is the calculation with the starting values:
- Annual pre-tax cash flow: 4,200
- Total cash invested: 62,000
That gives:
- Cash on cash return: 6.77 %
- Monthly cash flow: 350
- Years to recover the cash invested: 14.76 years
These figures are only the calculator's own starting values, included so the working is visible rather than hidden inside the tool above. Replace them with your own numbers and the same arithmetic applies — nothing about the method changes, only the inputs feeding it.
Reading the result
Investors typically look for 6–10%. Below 4% the deal depends entirely on capital growth, which is a different bet with a different risk profile. Note that this figure ignores appreciation and mortgage capital repayment, both of which add to the true return.
Where this goes wrong. Using gross rent instead of cash flow. Void periods, letting fees, insurance, maintenance and compliance certificates routinely consume 25–35% of gross rent before the mortgage is paid.
A useful check on any unfamiliar result is to compare it against a rough mental estimate first — round the inputs to convenient numbers and see whether the calculator's answer lands in roughly the same territory. A wildly different figure usually means one of the fields was entered in the wrong unit, most often a percentage typed as a whole number where a decimal was expected, or the reverse.
Six to ten percent is the common target for UK buy-to-let. Compare it against what you could earn passively — if a property returns 4% for considerable work and risk, the case is weak.
Cap rate ignores financing and measures the property's own return. Cash on cash includes the mortgage and measures the return on your cash, so leverage moves it while cap rate stays put.
The headline figure is cash on cash return. With 4,200 annual pre-tax cash flow and 62,000 total cash invested, that comes to 6.77 %. Change any field and the figure moves with it.
Whenever one of the underlying figures changes — a new interest rate, a different balance, an updated term — since the result only reflects what is currently in the fields. There is no need to keep a separate record of past results; the web address for a filled-in version already carries the figures used to produce it.
Not unless a tax rate or a fee is explicitly one of the inputs above. Where it is not, the figure shown is a gross calculation, and any tax due depends on your personal circumstances and current tax rules, which are worth checking separately.
The arithmetic itself is exact — the calculator applies the formula shown above precisely, with no rounding until the final figure is displayed. The uncertainty, where it exists, is entirely in the inputs: an estimated rate or an approximate balance carries that same approximation through to the result.