Use the Leverage Calculator to determine an investment property’s leveraged cash-on-cash return using a loan rather than all cash.

A property’s capitalization rate, its net operating income divided by the purchase price, is the same as the property’s unleveraged cash return: The cap rate is precisely the return an investor paying all cash for a property would receive. The leveraged cash return is a function of the percentage of the purchase price the investor puts down and the terms of the loan. With relatively high cap rates, low interest rates and longer loan amortizing periods, the leveraged return will be significantly higher than the unleveraged return (cap rate). With low cap rates, high loan rates or short loan terms, negative leverage results and an investor’s return is reduced by taking a loan on the purchase.