Cash-on-Cash Return Calculator with Worked Example
1. Short answer
Cash-on-cash return is annual cash flow divided by the equity you put in. It is the only return figure your bank account actually notices.
Cash-on-cash = (NOI − interest − principal) ÷ equity invested × 100%
The same apartment that shows a 5.37% gross yield produces a cash-on-cash of 0.84% on an interest-only loan: and −1.36% on an annuity loan. That is not an error: with an annuity you top up every month.
2. What cash-on-cash is, and what it is not
Where gross and net yield describe the property, cash-on-cash describes your position. Two buyers of the same property can have completely different cash-on-cash returns purely through financing.
The numerator is pre-tax cash flow: NOI minus everything going to the lender. The denominator is what you actually put in: including the acquisition costs the lender does not finance.
What it does not include:
- principal is not income, it leaves your account, even though it builds equity
- no capital growth
- no tax
- no sale proceeds
That last point matters for interpretation. A negative cash-on-cash does not automatically mean a bad investment: on an annuity you are converting cash flow into equity. It does mean the property costs you money each month, and you have to be able to carry that.
3. The formula, component by component
Numerator: annual cash flow. NOI minus the full payment to the lender. On interest-only that is interest alone; on an annuity or linear loan it includes principal.
Denominator: equity invested. Everything you paid at purchase: price minus loan, plus transfer tax, acquisition costs and initial works. This is the item most often understated, which inflates the return.
4. Worked example
The same apartment: NOI of € 11,074, financed with € 199,500 at 5.0%, equity of € 130,240.
| Item | Interest-only | Annuity, 30 years |
|---|---|---|
| NOI | € 11,074 | € 11,074 |
| Interest | − € 9,975 | − € 9,908 |
| Principal | € 0 | − € 2,943 |
| Annual cash flow | € 1,099 | − € 1,778 |
| Per month | € 92 | − € 148 |
| Equity invested | € 130,240 | € 130,240 |
Interest-only: 1,099 ÷ 130,240 × 100% = 0.84% Annuity: −1,778 ÷ 130,240 × 100% = −1.36%
| Metric | Value | What it means |
|---|---|---|
| Gross yield | 5.37% | What the property produces before anything |
| Net yield | 3.36% | After operating costs |
| Cash-on-cash (interest-only) | 0.84% | What actually stays in your account |
| Cash-on-cash (annuity) | −1.36% | You top up € 148 a month |
From 5.37% to 0.84%: that is the whole reason gross yield is a misleading figure. Nothing is wrong with the gross calculation; it simply measures something other than what you keep.
5. What counts as a good cash-on-cash return?
| Range | What it usually signals |
|---|---|
| negative | You top up monthly; defensible only if you are targeting equity build-up or growth |
| 0% – 2% | Typical in the Dutch residential market of 2026 at current rates |
| 2% – 5% | Good; often outside the main conurbation or at a lower purchase price |
| above 5% | Check the assumptions, or there is unusual risk |
The low ranges are a feature of this market, not a failure: at a 5% interest rate and a gross yield under 6%, little cash flow remains. To target cash flow you have to buy cheaper or finance cheaper, not assume more optimistically.
6. Three mistakes that distort the number
Acquisition costs left out of the denominator. On this property that is € 44,740 out of € 130,240. Using only the equity against the purchase price (€ 85,500) gives 1.28% instead of 0.84%, half again too high.
Counting principal as income. Repayment builds equity, but it does leave your account. To capture that effect, use return on equity; cash-on-cash is deliberately strict about cash.
Using year 1 of a linear loan. On a linear loan year 1 is heaviest and payments fall thereafter. On an annuity they stay flat. Always state which year and which repayment type.
7. Run your own numbers
Enter your own figures above. To see cash flow over several years with rent indexation, repayment and a rate review, the BRIX Calc rental calculator models it.
8. Frequently asked questions
Is cash-on-cash the same as return on equity?
On an interest-only loan with no capital growth they are identical. As soon as you repay principal or value moves they diverge: return on equity counts repayment and capital growth, cash-on-cash counts only cash.
Why is my cash-on-cash negative when gross yield looks fine?
Because gross yield includes neither costs nor financing. Between 5.37% and −1.36% sit € 6,626 of operating costs and € 12,852 to the lender. Both figures are correct; they measure different things.
Should tax be included?
Not in the standard calculation: cash-on-cash is normally presented pre-tax so it stays comparable between investors with different tax positions. To know your real net position, deduct your own liability separately.
Does cash-on-cash change when the property appreciates?
No. Capital growth affects your wealth, not your cash flow. Only on refinancing or sale does that value become cash, and then your equity or proceeds change too.
Can I improve cash-on-cash with a bigger loan?
Often yes, as long as the interest rate is below the property's return: your equity falls faster than your cash flow. That is leverage. It works in reverse too: above that rate a bigger loan worsens your position, and your DSCR falls either way.