The Cash on Cash Waterfall Formula
From gross rent through vacancy, expenses, and debt service — every dollar accounted for. What remains is Cash Flow Before Tax divided by your total cash invested.
Interactive Waterfall
Switch scenarios to see how financing terms reshape the waterfall and your CoC ROI.
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What Each Step Means
The waterfall has five layers. Each one explains where a dollar of rent goes — and why.
Gross Potential Rent
Full market-rate rent every month, all year. The ceiling before real-world friction. Your starting position before anything comes off.
Vacancy & Credit Loss
Turnover gaps, tenant transitions, and non-payment. Even a great property at 3–5% vacancy loses rent you never collect.
Operating Expenses
Everything it costs to run the property before the mortgage: taxes, insurance, maintenance, management, HOA, utilities, CapEx reserves.
Debt Service (P+I)
Principal + interest on your loan. Unlike cap rate, this step is personal — it depends on your down payment, interest rate, and loan term. Two investors buying the same property can have very different waterfall shapes here.
Cash Flow Before Tax
What lands in your bank account after all expenses and the mortgage payment. Divide by your total cash invested and you have your Cash on Cash ROI.
Why the Waterfall View Matters
A single number can't tell you where cash flow goes. The waterfall shows you every layer.
Every Layer Is Visible
Most buyers see rent minus mortgage. The waterfall shows every step in between — vacancy, each expense category, debt service — making every leak visible and fixable.
Financing Terms Reshape the Shape
At 5% rate, the debt service bar is smaller and CFBT is larger. At 7.5%, the debt service bar can dwarf your NOI entirely. The waterfall makes this concrete.
Small Improvements Compound
A $50/mo rent increase, $40/mo insurance saving, and a 0.5% rate buydown combine for $1,080/yr more CFBT. At $75,000 invested, that's 1.44% more CoC ROI.
What Moves Your Cash on Cash ROI
Understanding the waterfall is the first step. Knowing which levers to pull is the second.
Increases Your CoC ROI
- Raise rent to market rate or above
- Reduce vacancy through tenant retention
- Lower interest rate via buydown or refi
- Cut operating expenses (insurance, management)
- Buy at a lower purchase price (less loan)
Decreases Your CoC ROI
- Higher interest rate at purchase
- Smaller down payment (higher P+I)
- Rising property taxes or insurance
- Deferred maintenance becomes emergency spend
- Long vacancy cycles / high turnover
See Your Property's Waterfall
Enter your loan terms and property numbers. Watch exactly how each dollar flows from gross rent down to your Cash on Cash ROI — then stress-test every assumption with the sensitivity sliders.
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