The Interest Rate at Which Cash-on-Cash Return Hits Zero

Every rental has an interest rate at which its cash-on-cash return is exactly zero: the rate where the year's mortgage payments use up all of the property's net operating income. Above it, the property costs you cash each year. Below it, the property pays you. This guide shows how to find that rate for your own deal, and how the down payment moves it.

The definition, and where the break-even comes from

Cash-on-cash return is, in Wikipedia's wording, "the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage." The cash-on-cash calculator computes it in three steps, in lib/cash-on-cash.js:

1. Annual cash flow = net operating income (NOI) − annual debt service.
2. Cash invested = down payment + closing costs + rehab costs.
3. Cash-on-cash % = annual cash flow ÷ cash invested × 100.

The invested cash is always a positive number, so the sign of the return comes from the top line alone. Cash-on-cash is zero when annual debt service equals NOI, and that is the whole break-even test. For the basics of each piece, see Cash-on-Cash Return, Explained and How to Calculate NOI.

Debt service depends on the loan amount, the rate and the term. That means the break-even rate is a function of your loan, not of the property alone. It is the rate where the payment on your loan equals your NOI.

Worked example

These are assumptions for illustration, not market figures. Substitute your own.

Input	Value
Purchase price	$300,000
Rent	$2,500 per month
Vacancy	5% of gross rent
Operating expenses	$11,500 per year
Closing costs	$9,000
Loan term	30 years, fixed

Gross rent is $2,500 × 12 = $30,000. Vacancy takes $1,500, leaving $28,500. After $11,500 of expenses, NOI is $17,000.

Scenario A: 25% down

The down payment is $75,000, so cash invested is $75,000 + $9,000 = $84,000, and the loan is $225,000. Running the loan through the standard amortization formula at each rate below gives:

Interest rate	Annual debt service	Annual cash flow	Cash-on-cash
4%	$12,890	$4,110	4.89%
5%	$14,494	$2,506	2.98%
6%	$16,188	$812	0.97%
7%	$17,963	−$963	−1.15%
8%	$19,812	−$2,812	−3.35%

Solving for the rate where debt service equals $17,000 gives a break-even rate of about 6.46%. A quote of 6.4% leaves a small positive cash flow, and a quote of 6.5% leaves a small negative one.

Scenario B: 50% down, same property

The down payment is $150,000, so cash invested is $159,000 and the loan is $150,000.

Interest rate	Annual debt service	Annual cash flow	Cash-on-cash
4%	$8,593	$8,407	5.29%
5%	$9,663	$7,337	4.61%
6%	$10,792	$6,208	3.90%
7%	$11,975	$5,025	3.16%
8%	$13,208	$3,792	2.39%

The break-even rate rises to about 10.90%, because a smaller loan needs a much higher rate before its payment reaches $17,000.

What the two scenarios show

• The break-even rate is a cushion. In scenario A the deal stays cash-positive only while the rate is under about 6.46%. In scenario B the same rent and expenses tolerate a rate above 10%.
• A larger down payment lifts the floor, but the percentage barely moves at low rates. At 4%, the 25% down loan returns 4.89% and the 50% down loan returns 5.29%, even though cash invested rose from $84,000 to $159,000.
• Rates cut the two scenarios by different amounts. Moving from 4% to 8% takes scenario A from 4.89% to −3.35%, a swing of 8.24 percentage points. The same move takes scenario B from 5.29% to 2.39%, a swing of 2.90 points.
• NOI is the other lever. Every dollar of extra NOI or expense saved moves the break-even rate in your favour without touching the loan. That is why a vacancy assumption matters as much as the rate quote.

Limits of this test

Cash-on-cash is a first-year, pre-tax snapshot. Wikipedia lists what it leaves out: it "cannot take into account an individual investor's tax situation," it "does not take into account any appreciation or depreciation," and it does not account for other risks tied to the property. A property that breaks even on cash may still build equity through principal paydown, and one that shows a healthy return may carry risks the number cannot see. Use the break-even rate to see how much rate room a deal has, not to decide whether to buy it.

The example also holds NOI fixed. Real rents, vacancy and expenses change from year to year, and rate quotes change daily and differ by lender, loan program and borrower, so the figures above are reference values only.

Run your own break-even

Enter your price, rent, vacancy, expenses, closing costs and loan terms in the cash-on-cash return calculator. Then raise the rate until the result reaches zero. That rate is your deal's break-even, and the calculator shows every intermediate step so you can check it by hand.

Frequently asked questions

What interest rate makes cash-on-cash return zero?

It is the rate at which annual debt service equals NOI. For the 25% down example above ($17,000 NOI, $225,000 loan, 30-year term) that is about 6.46%; your own figure depends on your loan and NOI.

Why does a bigger down payment raise the break-even rate?

A bigger down payment shrinks the loan, so the same rate produces a smaller payment against the same NOI. In the example, the 50% down loan does not break even until about 10.90%.

Is a break-even rate below my quote a dealbreaker?

This guide makes no recommendation. It shows how much rate room the numbers have; other factors such as principal paydown, appreciation and taxes sit outside cash-on-cash.

Does the break-even rate change with the loan term?

Yes. Debt service depends on the term as well as the rate and loan amount, so a different term changes the payment at every rate. Run the term you are being quoted through the calculator.

Informational only, not professional or financial advice. All figures in the example are illustrative assumptions, and mortgage terms vary by lender, loan program and jurisdiction.

Last reviewed: September 2026.