Move between the unlevered cap rate and the levered cash-on-cash return. Adjust the debt, expenses, and price to see exactly how leverage changes what you actually earn.
The cap rate is the property's unlevered yield — not your take-home. Cash-on-cash is what you actually keep after debt and costs. Here's why they differ →
It's the property's unlevered, in-place yield — net operating income over price — and nothing more. Two investors who buy at the same cap rate can take home very different amounts once financing, round-trip costs, reserves, and taxes are in. The number you live on is the cash-on-cash, not the cap rate.
The same property has two return numbers. The cap rate is what it earns with no loan — net operating income over the price. The cash-on-cash is what you earn on the cash you put in, after the loan is paid.
When the loan constant is below the cap rate, each borrowed dollar earns more than it costs — leverage lifts cash-on-cash above the cap rate (positive leverage). When the loan constant is above the cap rate — common when rates are high — borrowing drags your return below the cap rate (negative leverage). Lower the rate or the LTV, or find a higher cap, to flip it.
Triple-net (NNN) investors are the most likely to conflate the two. Because the tenant pays the property taxes, insurance, and maintenance, it's tempting to treat the cap rate as a clean, expense-free net yield. It isn't. The cap rate is still unlevered: the moment you put a loan on a NNN deal, the debt service comes out of that NOI — and when your loan constant is higher than the cap rate (common when borrowing costs are elevated), your cash-on-cash lands below the cap rate, not at it.
Even all-cash, a NNN cap rate quietly leaves things out: asset management, capital reserves, the cost and downtime of re-leasing when the term ends, the risk of a tenant going dark, and often flat or modest rent bumps that let inflation erode your real yield. Layer on the round-trip acquisition and disposition costs this tool amortizes, plus eventual taxes, and "the cap rate" and "what you keep" can sit a full point or more apart.
Why it matters: when you compare replacement properties — DSTs, NNN, anything — line them up on cash-on-cash after debt and costs, not on headline cap rate. The highest cap rate is frequently not the highest take-home.
One-time acquisition and disposition costs don't appear in either headline return, so the tool also spreads them across your hold period and reports a cash-on-cash net of those costs — a fuller picture of what you keep after getting in and out. Cash invested is the down payment; the round-trip costs are handled through this amortization rather than the denominator.
Educational estimate only. This tool is for general illustration and is not tax, legal, or investment advice. It uses simplifying assumptions and the figures you enter, which may not reflect your situation; it ignores taxes, reserves, capital expenditures, and changes in income. Cash-on-cash measures pre-tax cash yield only, not total return. Figures are illustrative and not guaranteed. Consult your own qualified advisors before acting. Not an offer or solicitation. DST interests are sold only to accredited investors via private placement memorandum. Securities offered through Aurora Securities, Inc. (ASI), member FINRA/SIPC; Baker 1031 Investments is independent of ASI.
Cap rate is the unlevered return — net operating income divided by the property price, ignoring any loan. Cash-on-cash is the levered return — your annual cash flow after debt service divided by the cash you actually invested.
When your loan constant (annual debt service divided by the loan) is higher than the cap rate, that's negative leverage: each borrowed dollar earns less than it costs, so cash-on-cash falls below the cap rate. When the loan constant is below the cap rate, leverage is positive and lifts your return.
No. Even on an absolute-NNN lease where the tenant covers taxes, insurance, and maintenance, the cap rate is an unlevered, in-place figure. Financing, capital reserves, re-leasing costs at lease expiration, flat rent bumps, round-trip transaction costs, and taxes all sit between the cap rate and what you actually keep. Compare deals on cash-on-cash, not cap rate.
Not necessarily. Higher leverage can raise cash-on-cash but also raises risk and lowers your debt-service coverage. Many 1031 investors prefer lower-leverage or all-cash positions for stability, even at a lower headline return.
