PProp-Folio
Home For Business Help Contact
Download on iOS

Cap Rate vs Cash-on-Cash vs DSCR Explained

Three of the most-cited rental property metrics. Each one answers a different question. Here's what they actually mean.

The 30-second version

Cap Rate measures asset performance independent of how you finance it. Cash-on-Cash measures your actual return on the actual cash you put in. DSCR measures whether the property can pay its own mortgage. You need all three. None of them is "the" answer.

Cap rate

Formula

Cap Rate = Net Operating Income / Purchase Price

NOI is gross rental income minus operating expenses (taxes, insurance, vacancy, repairs, CapEx, property management) BEFORE debt service. Purchase price is what you paid.

What it tells you

The unlevered yield of the property. A 7% cap rate means the property produces 7% of its purchase price in annual net income, regardless of how it's financed. It's the "What if I paid all cash?" return.

What good cap rates look like in Chicago

  • South/West side small multifamily: 7.5–10%
  • North side small multifamily: 4.5–6.5%
  • Hyde Park, Logan Square, Lincoln Park: 4–6%
  • SFR rentals: 4.5–7% typically

Cash-on-cash return

Formula

Cash-on-Cash = Annual Pre-Tax Cash Flow / Total Cash Invested

Cash flow is what hits your bank after the mortgage is paid. Cash invested is down payment + closing costs + rehab + carry — everything you spent.

What it tells you

The leveraged return on your actual dollars. This is the number that answers "what am I really earning on my money?" It's what most investors care about because nobody pays all cash.

What good numbers look like

  • Stabilized rental: 8–12% is solid
  • BRRRR post-refi: often 25%+ because most of your money is back
  • Fix & Flip: not applicable (use ROI instead)

Debt Service Coverage Ratio (DSCR)

Formula

DSCR = NOI / Annual Debt Service

Annual debt service is your principal + interest payments over a year (taxes and insurance are already netted out of NOI).

What it tells you

Whether the property can pay its own mortgage from operations. A DSCR of 1.25 means the property generates 25% more income than it needs to cover debt service — a comfortable cushion.

Why lenders care

Almost every investor mortgage (DSCR, conventional, commercial small balance) underwrites to a minimum DSCR. Typical bar: 1.20–1.25. If your deal is below 1.20, you either need more down or a different loan product.

Which one matters most?

  • Comparing properties: Cap Rate (eliminates the noise of how each one is financed)
  • Deciding if a deal is worth the cash: Cash-on-Cash
  • Getting the loan approved: DSCR
  • Real-world investing: All three, plus your gut check on the neighborhood

How Prop-Folio surfaces them

Every Buy & Hold and BRRRR summary in Prop-Folio shows Cap Rate, Cash-on-Cash, and DSCR up front. PropScore weights all three (and a few others) by strategy, so a single 1–5 figure tells you whether the combination is workable.

See your own metrics  →


Related: What is a Deal Score? · Hard money + DSCR in Chicago · Chicago BRRRR underwriting

PProp-Folio

Real estate underwriting for individual investors.

Informational analysis only — not personalized investment, tax, or legal advice.

Product

  • Download on iOS
  • For Business
  • Help
  • Contact

Legal

  • Privacy Policy
  • Terms of Use
  • DMCA Policy
  • Third-Party Notices
  • Security

Connect

  • Instagram
  • social@prop-folio.app

Support

  • support@prop-folio.app
© Winchester Realty & Holdings LLC. All rights reserved. v1.0.0 · iOS