← Guides · November 9, 2026
Cap Rate vs Cash-on-Cash Return: Which One to Trust
Take a $320,000 rental renting for $2,600 a month, 25% down at 7%, with 5% vacancy and typical costs.
- Cap rate divides net operating income (before the mortgage) by price. It tells you how good the property is as an asset, with or without a loan.
- Cash-on-cash divides yearly cash flow (after the mortgage) by the cash you invested. It tells you how good the deal is with your financing.
When interest rates are high, a property can have a decent cap rate and negative cash flow, because the loan costs more than the property yields. That is why you need both, plus DSCR, which lenders use to check that income covers the loan payments.
Quick rules of thumb
- Cap rate below your mortgage rate means leverage is hurting you.
- DSCR under 1.0 means the rent does not cover the loan.
- The 1% rule (rent ≥ 1% of price) is a fast filter, not a verdict.
Test a deal in the calculator.