Why Cash Flow Is the Real Bottom Line

Cap rate tells you how a property performs on paper. Cash flow tells you what actually happens to your bank account each month once your specific mortgage is in the picture. Two properties with identical cap rates can have completely different cash flow depending on your down payment, interest rate, and loan term — which is exactly why serious investors run both numbers before buying.

The Full Formula

Cash-on-cash return is the metric most investors actually care about — it measures your return on the cash you put in (down payment plus closing costs), not the full property value.

How to Use This Calculator

Enter the purchase details and financing terms you're considering, then your expected rent and operating expenses. The calculator handles the mortgage amortization automatically and shows both your cash flow and cash-on-cash return — plus the cap rate for cross-reference against other deals.

What Counts as "Total Cash Invested"

This is your down payment plus closing costs — the actual cash that leaves your pocket to acquire the property. It's deliberately not the full purchase price, since the rest is financed by the mortgage and doesn't represent your capital at risk.

Reading Negative Cash Flow

Negative monthly cash flow means the property costs you money every month after all expenses and mortgage payments. Some investors accept this temporarily in high-appreciation markets, betting on equity growth over time — but it's a materially different (and riskier) strategy than buying for positive cash flow, and should be a deliberate choice, not a surprise.

The 1% Rule (and Why It's Just a Filter)

Some investors use a quick screening rule: monthly rent should be at least 1% of the purchase price. It's a rough filter for quickly discarding obviously weak deals, not a substitute for running the actual numbers — plenty of properties that fail the 1% rule still cash flow well, and plenty that pass it don't, once real expenses are included.

Worked Example

A $350,000 property with 25% down ($87,500) plus $8,000 closing costs, financed at 6.75% over 30 years: the mortgage payment is about $1,704/month. Renting for $2,800/month with 5% vacancy and typical expenses, NOI comes to roughly $1,980/month — leaving about $276/month in cash flow, or $3,312/year, against $95,500 invested: a 3.5% cash-on-cash return.

Where This Fits Your Bigger Picture

Compare a deal's cap rate alone with our cap rate calculator when screening multiple properties quickly. If you already own a rental and are weighing whether to keep it, see our sell vs. keep calculator.

Frequently Asked Questions