Understanding the calculation
Gross income multiplies monthly rent by rented months. Operating costs are deducted before financing; count each annual cost once. Gross yield uses purchase price; net operating yield uses price plus upfront costs. First-year fixed-rate loan payments are deducted from operating income to obtain cash flow. Cash-on-cash yield divides it by equity invested, excluding appreciation and not adding principal repayment as rent. With zero equity, the ratio is undefined.
Operating income = rent × months − expenses. Cash flow = operating income − annual loan payments. Equity = price + upfront costs − loan.
Worked example
Fictional EUR example: price 200,000, upfront costs 10,000, monthly rent 1,000 for ten months and annual expenses 2,000. Gross income is 10,000 and operating income 8,000: gross yield 5% and net yield 3.81%. Without a loan, cash flow is 8,000. With an interest-free 100,000 loan over ten years, annual payments are 10,000 and cash flow −2,000; 10,000 principal is repaid, not rental income.
Assumptions and limits
Results cover one year at constant rent and costs. Personal taxes, appreciation, major renovations and sale are excluded. Property taxes are manually entered as operating costs. Sensitivity changes rent or costs by 10%; the occupancy table changes months, not price. Positive operating yield can coexist with negative cash flow due to financing.
Questions about this tool
Does principal repayment count as rental income?
No. It is part of the cash outflow to repay the loan. It reduces debt and is reported separately; it does not increase operating income.