Assumptions
- All figures are before income tax. Depreciation, capital gains tax and landlord licensing costs are excluded.
- Net yield uses purchase price plus closing costs, less any tenant deposit held. Cap rate does not subtract the deposit.
- Only mortgage interest is deducted. Principal repayment builds equity, so it is not treated as a cost.
- Inputs stay in your browser and are never stored or transmitted.
How it is calculated
- Annual rent is reduced by the vacancy allowance, then expenses are subtracted to give net operating income.
- Gross yield divides annual rent by the price; net yield divides net operating income by price plus costs less any deposit held.
- Mortgage interest is subtracted to give monthly cash flow, which divided by your own money gives the cash-on-cash return.
- Expenses plus interest over annual rent gives break-even occupancy, and your money over annual cash flow gives the payback period.
Examples
Common mistakes
- Budget for capital repairs. Roofs, boilers and appliances arrive as lump sums; spread an allowance across the monthly expenses.
- Principal repayment is missing from cash flow by design. Your actual bank balance falls by more than the interest shown here.
- A high yield often signals low liquidity. Check how long comparable properties take to sell before committing.
FAQ
What is the difference between gross yield, net yield and cap rate?
Gross yield divides the annual rent by the purchase price alone, which makes it easy to compare listings but flatters every deal. Net yield subtracts operating expenses and a vacancy allowance and divides by what you actually tie up, including closing costs. Cap rate is close to net yield but is conventionally taken on the full purchase price plus costs, ignoring financing and any deposit held. A $250,000 property renting at $1,500 shows a 7.2% gross yield, but with $12,000 of closing costs, $300 a month of expenses and 5% vacancy the net yield falls to about 5.2%.
Why does cash-on-cash return differ from net yield?
Because it only counts the money you actually put in, and subtracts mortgage interest. If the mortgage rate is below the net yield, leverage lifts the cash-on-cash return above it. If the rate is higher, the return drops and the monthly cash flow can turn negative even on a property that looks profitable unleveraged. Comparing your rate against the net yield is the core test of whether the loan helps.
What is break-even occupancy?
The share of the year you have to keep the unit rented just to cover expenses and interest. At 55% you can afford several empty months; at 90% a single vacant month puts you in the red. It rises quickly with leverage, so it is the clearest single number for how much vacancy risk a deal carries.
What vacancy rate should I assume?
One empty month a year is 8.3% and two months is 16.7%. Student areas turn over on a fixed academic calendar and leave predictable gaps, while markets with a lot of new supply take longer to fill. Using at least 5% to 10% keeps the projection honest, and local rental market reports will give a better figure for your area.
Why is tax not included?
Rental income tax depends on your other income, your filing status, how the property is held and how much depreciation you can claim, which varies far too much to assume. This calculator stops at pre-tax cash flow. In the United States, remember that depreciation reduces taxable income while you hold the property and is recaptured when you sell.
Is anything I type sent anywhere?
No. The whole calculation runs in this page and the figures never leave your device.