What this calculator returns
Four figures, answering four different questions. Monthly cash flow is what remains after the mortgage, taxes, insurance and every reserve have been taken out — the number you actually live on. Cap rate measures the property's earning power independent of how you paid for it, which makes it the figure to use when comparing one house against another. Cash-on-cash return measures what your own money earned, which makes it the figure to use when comparing this house against some other use of the same cash. Rent-to-cost ratio is a crude price-against-rent check, useful for sorting a long list of addresses and not useful for deciding anything by itself, because what counts as a healthy ratio varies enough between metros that the number carries no verdict on its own.
A fifth figure, max offer, runs the arithmetic backwards: instead of asking what return a price produces, it asks what price produces the return you typed into the target cap rate field.
Why cap rate here is calculated on all-in cost
Most published cap rates divide net operating income by the purchase price. This calculator divides by purchase price plus rehab, and the difference matters. A house bought for $200,000 that needs $40,000 of work before a tenant can move in has not cost $200,000 — it has cost $240,000, and the rent it eventually collects has to justify the larger figure. Dividing by the purchase price alone means the cap rate improves every time you underestimate the rehab, which is precisely backwards from how an estimate should behave.
Closing costs are treated differently, and it is worth knowing why. They appear in total cash needed, because you have to write that check, but they are excluded from the cap-rate denominator, because they are a cost of transacting rather than capital that ends up in the asset. The practical effect is that cap rate and cash-on-cash return are measured against slightly different bases, which is the main reason the two never line up exactly even on a cash purchase.
Reading the example this page loads with
The default values describe a deliberately ordinary deal rather than a good one, and walking through them is the fastest way to understand the outputs. These figures are illustrative — they are a teaching example, not market data for any particular city.
| Input | Value |
|---|
| Purchase price | $275,000 |
| Closing costs | $6,500 |
| Monthly rent | $2,200 |
| Down payment / rate / term | 20% · 7.0% · 30 yrs |
| Taxes · insurance (annual) | $3,200 · $1,400 |
| Management · maintenance · vacancy · CapEx | 8% · 5% · 5% · 5% |
Rent of $2,200 less a 5% vacancy allowance leaves $2,090 of effective monthly income. Operating expenses come to $779 a month — $267 of taxes, $117 of insurance, $176 of management, and $110 each for maintenance and capital expenditure. That leaves net operating income of $1,311 a month, or $15,728 a year, and on an all-in cost of $275,000 that is a cap rate of 5.7%.
Then the financing arrives. A $220,000 loan at 7.0% over thirty years costs $1,464 a month, which is $153 more than the property earns. So monthly cash flow is -$153, the annual figure is -$1,836, and cash-on-cash return on the $61,500 of cash required is -3.0%. The rent-to-cost ratio reads 0.8%.
Nothing in that list is an unreasonable assumption. The rent is not pessimistic, the reserves are conventional, the rate is ordinary. The deal simply does not work at that price, and the value of seeing it laid out line by line is that you can tell which line is responsible rather than concluding that rentals do not cash flow.
What the max offer field is for
Leave the target cap rate at 7% and the calculator reports a max offer of $224,686. That is net operating income of $15,728 divided by 0.07, less any rehab you entered. In the default example it sits roughly $50,000 below the asking price, which is the actual finding: at $2,200 of rent and these expenses, a 7% cap rate is a different house, or the same house at a materially lower number.
Used honestly, this field turns the calculator from a verdict machine into a negotiating input. You decide what return the risk deserves, and the arithmetic tells you the highest price consistent with it. Used dishonestly — by lowering the target until the max offer reaches the asking price — it tells you nothing at all.
The four reserve percentages, and what they are not
Management, maintenance, vacancy and capital expenditure are all entered as percentages, and all four are taken against gross rent before the vacancy deduction. Each one in the default example is a percentage of $2,200, not of the $2,090 that survives vacancy. Vacancy itself is modeled as income you never collect rather than a bill you pay, which is why it reduces effective income at the top instead of appearing in the expense list.
Maintenance and capital expenditure are deliberately separate lines because they behave differently. Maintenance is the steady trickle — a failed water heater element, a fence panel, a service call. Capital expenditure is the roof, the HVAC system, the sewer lateral: items that cost thousands, arrive on a schedule nobody controls, and will not be covered by whatever is left over from a good month. Folding them into one number tends to understate the second, because the first is the one you have recent memory of.
These four defaults are placeholders, not recommendations. Replace them with figures for the specific property as soon as you have them: a management quote rather than 8%, an insurance quote rather than an estimate, and a vacancy assumption drawn from the submarket rather than a round number. Our guide on where to find your numbers covers which public source owns each figure.
When cap rate and cash-on-cash disagree
Switch purchase type to Cash and the loan disappears. Debt service goes to zero, monthly cash flow becomes the full $1,311 of net operating income, and cash-on-cash return comes in at 5.6% against the 5.7% cap rate. The small remaining gap is the $6,500 of closing costs, which sits in the cash you invested but not in the all-in cost the cap rate is measured against.
Add leverage and the two numbers separate in whichever direction the spread between the cap rate and the borrowing cost points. Borrow at a rate below the property's unlevered return and cash-on-cash rises above the cap rate; borrow above it, as in the default example, and cash-on-cash falls below — here all the way through zero. This is the mechanism behind the observation that leverage amplifies outcomes rather than improving them, and it is why a deal should be checked at a rate somewhat above today's quote. Rates move between an accepted offer and a closing, and a property whose returns only survive at the quoted rate has no margin for that.
What a negative result does and does not mean
A negative cash flow figure is information about a price, a rate and a rent assumption together — not a verdict on the property. Three levers move it, and they are worth testing one at a time. Price is the one with the most room, which is what the max offer field quantifies. Financing is the next, though the honest version is a larger down payment rather than a rate you hope to be offered. Rent is the most tempting and the most dangerous, because every downstream figure is built on it and an optimistic $150 a month is enough to turn this example positive on paper while changing nothing about the house.
Worth reading alongside this page: how to underwrite a single-family rental for the full walkthrough of each input, and setting realistic return targets for what these metrics tend to look like in practice. For a cash purchase with no debt service, the cash versus financing comparison covers the trade-off in more depth.