Say you buy a $650,000 rental with $260,000 down and $20,000 in closing costs. That’s $280,000 of your own money invested. If the property leaves $4,819 a year after the mortgage, the cash-on-cash return is 1.72%, or about $402 a month.
What the measure shows
Divide one year of cash flow by the cash you put in, and you have cash-on-cash return. It covers a single year and ignores price growth. It counts only your own money, so borrowing changes the result. That is the main difference from the cap rate, which looks at the property alone.
What counts as cash invested
Add up your down payment, land transfer tax, legal fees and inspection, plus any renovation paid for before the first tenant. The mortgage itself stays out. The more of your money you tie up, the lower the return on the same cash flow.
How cash flow is found
Start with rent after vacancy. Subtract operating costs and you get net operating income. Then take off the yearly mortgage payments, and what remains is pre-tax cash flow. Negative cash flow means a negative return.
Why the rent table matters
The mortgage doesn’t move when rent does, so a small rent change shifts the return a lot. In the table, rent 10% lower leaves almost nothing, while rent 10% higher lifts the return to 3.2%. It shows your room.
Borrowing cuts both ways
A smaller down payment raises the return when the property earns more than the loan costs. With high rates, it can drag cash flow below zero. Try different down payments and rates to find where the return turns.
What it leaves out
Principal you repay, price growth and income tax are not in the result. Those still add to your wealth over time. For a longer projection, use the rental property calculator.
Toronto and Ontario investors
High Toronto prices keep cash-on-cash returns low, and some buyers accept near-zero cash flow in exchange for price growth. Smaller Ontario markets often let rent cover the mortgage more easily. Test your own city with local rent and tax figures, and hold a cash reserve for the first year.
Setting a target
Pick the return you need before shopping. A 6% return on $280,000 means about $16,800 of cash flow a year, or $1,400 a month. Use the table to see how far rent must climb to get there, then compare that rent with what similar units really charge.
A worked example
With $280,000 invested and $4,819 of yearly cash flow, the return is 1.72%. Raise the rent to $3,780 and cash flow rises to about $6,900, a return of 2.46%. A lower down payment can push the return either way. Test each one before you make an offer, because a bad guess here costs real money later.
Checking your inputs
Use real figures. Ask for the property tax bill, get an insurance quote, and check current rents for similar units on listing sites. Hopeful rent and low repair costs are the usual reasons a return looks better on paper than it turns out to be once tenants move in and the first roof or furnace repair arrives. Run a cautious case next to the optimistic one.
Where to go next
The cap rate calculator shows the return without a loan. To weigh other uses for your cash, try the ROI calculator. The mortgage side can be tested in the mortgage calculator.
Frequently asked questions
What is cash-on-cash return?
Yearly pre-tax cash flow divided by the cash you invested.
What is a good cash-on-cash return?
Many investors look for 6% to 10%, though Toronto often shows less.
How is it different from cap rate?
It includes the mortgage and looks at your cash, not the price.
What counts as cash invested?
Down payment, closing costs and renovation.
Does it include price growth?
No. It looks at cash flow only.
Can it be negative?
Yes, when the mortgage and costs exceed the rent.
Sources and updates
Last reviewed: . Full disclaimer. How we build calculators. Editorial policy.
Estimate only. This calculator gives general information for planning. It is not tax, legal or financial advice, and it is not affiliated with the City of Toronto, MPAC or the Canada Revenue Agency. Results depend on the numbers you enter and may differ from official amounts. Check official sources or a qualified professional before you decide.