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Back-of-the-napkin commercial real estate underwriting, in seconds.
5 Second Model · back-of-the-napkin underwriting
Cash-on-Cash Return
Cap rate ignores your loan. This is what your own money earns.
Cap rate ignores your loan. Cash-on-cash return is what the money you actually put in earns each year after debt service, which is the number that determines whether a deal pays you while you own it. This model shows year-one cash-on-cash next to the cap rate so the effect of leverage is visible in one line, then runs a full hold-period discounted cash flow with unlevered IRR, levered IRR, equity multiple and net present value at your own discount rate.
Statement of assumptions & returnsAll figures USD · annual unless noted · click any number to type it exactly
Cash-on-cash
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Unlevered vs levered vs total return
| Net operating income | -- |
| Less annual debt service | -- |
| Cash flow before tax | -- |
| Down payment | -- |
| Closing costs | -- |
| Loan fee | -- |
| Total cash in | -- |
| Cap rate, no debt | -- |
| Total return with principal paydown | -- |
| Cash flow once IO burns off | -- |
Over the full hold
| Exit value | -- |
| Unlevered IRR | -- |
| Levered IRR | -- |
| Equity multiple | -- |
| Net present value | -- |
NPV versus IRR: IRR tells you the rate; NPV tells you whether the deal beats the return you actually require, in dollars. A positive NPV at your discount rate means the deal clears your hurdle with room to spare. Two deals can share an IRR and have very different NPVs if one puts far more money to work. Sale is shown net of your sale broker fee plus 1% closing.
Debt service coverage by year
Amortization schedule
Read the two together. Coverage tells you whether each year clears the lender’s floor; the schedule tells you what you still owe on the day you sell. An interest-only period flatters the first and does nothing for the second — the balance sits exactly where it started.
Leverage cuts both ways: when the cap rate sits above the loan constant, borrowing lifts your return. When it sits below — common at today's rates — leverage drags it down.
Common questions
- What is a good cash-on-cash return?
- Under 4% is thin enough that you should compare it against a Treasury before signing. Four to eight percent is reasonable for stabilized commercial. Above eight, check that the assumptions hold.
- Why is my cash-on-cash below the cap rate?
- Because the loan constant is above the cap rate. When you borrow at a total annual cost higher than the property yields unlevered, leverage drags your return down instead of lifting it.
- IRR or NPV — which matters more?
- IRR tells you the rate; NPV tells you in dollars whether the deal beats the return you require. Two deals can share an IRR and have very different NPVs if one puts far more capital to work.