Analyze the potential of your next real estate deal by evaluating the Capitalization Rate (Cap Rate) and Cash-on-Cash return metrics based on purchase costs and financing parameters.
Net Operating Income (NOI):
15636
Cap Rate:
6.254%
Annual Cash Flow:
Cash-on-Cash Return:
28.429%
Cap Rate measures a property's potential profitability relative to its purchase price, while Cash-on-Cash (CoC) Return measures the annual return on the actual cash you invested, providing a more detailed look at the impact of financing on your performance.
Cap Rate = Net Operating Income / Purchase Price
CoC Return = Annual Cash Flow / Total Cash Invested
Imagine a property purchased for $200,000 with a 20% down payment ($40,000) and a monthly rent of $1,500 ($18,000 gross annual rent).
A good cap rate typically falls between 4% and 10%. This range varies significantly depending on the market, property condition, and current economic interest rates.
CoC Return matters because it measures the actual return on the cash you physically spent (liquid capital), accounting for the power of leverage from your mortgage.
Operating expenses include ongoing costs like property taxes, insurance, repairs, and property management fees. They do not include mortgage payments or capital expenditures.
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