Key takeaways
- Cap rate = unleveraged yield (ignores the loan).
- Cash-on-cash = return on the cash you invested (includes the loan).
- Total ROI = cash flow + loan paydown + appreciation ÷ cash invested.
- Use cap rate to compare, cash-on-cash to judge financing, ROI for the full picture.
At a glance
| Metric | Includes the loan? | Best for |
|---|---|---|
| Cap rate | No | Comparing properties on equal footing |
| Cash-on-cash | Yes | Judging a financed deal's cash return |
| Total ROI | Yes | The full first-year return (cash + paydown + appreciation) |
Cap rate: the great equalizer
Cap rate is net operating income ÷ price. Because it ignores financing, two investors with different loans see the same cap rate on the same building — which makes it the standard for comparing deals. Run it in the cap rate calculator.
Cash-on-cash: your money's real return
Once you take a loan, what matters is the return on the cash you actually put in. Cash-on-cash divides annual cash flow by your down payment plus closing costs. Borrow below the property's yield and it rises above the cap rate (positive leverage); borrow above it and it falls.
Total ROI: the whole story
Neither cap rate nor cash-on-cash counts loan paydown or appreciation. The rental property ROI calculator adds those in for a first-year total return — just remember appreciation is an assumption, so weight cash flow first.
Frequently asked questions
Cap rate vs. cash-on-cash?
Cap rate is the unleveraged yield and ignores your loan; cash-on-cash includes the loan and measures return on invested cash.
Which should I use?
Cap rate to compare, cash-on-cash to judge a leveraged deal, total ROI for the full first-year picture.
Can cash-on-cash beat the cap rate?
Yes — positive leverage (borrowing below the property's yield) pushes it above the cap rate; negative leverage does the opposite.