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Claim analyzed
Finance“A $250,000 duplex with a $50,000 down payment, $2,000 monthly rent, and $5,000 annual expenses produces approximately a 7.2% capitalization rate and, after financing at 6.5% interest, a cash-on-cash return of 10–13%.”
The conclusion
The claim's own numbers contradict its conclusions. Standard formulas applied to the stated inputs ($24,000 rent minus $5,000 expenses = $19,000 NOI) yield a 7.6% cap rate — close to but not 7.2% — and a cash-on-cash return of roughly 7.7%, far below the claimed 10–13%. Reaching 10–13% would require materially different inputs such as a much smaller down payment or significantly higher rent. The cash-on-cash figure is substantially overstated and could mislead prospective investors.
Based on 17 sources: 5 supporting, 3 refuting, 9 neutral.
Caveats
- The cash-on-cash return calculated from the claim's exact inputs ($200,000 loan at 6.5% for 30 years ≈ $1,264/month debt service) is approximately 7.7%, not 10–13% — a significant overstatement that could mislead investment decisions.
- The cap rate from the stated figures is 7.6% ($19,000 ÷ $250,000), not 7.2%; no vacancy rate or other adjustment is specified in the claim to justify the lower figure.
- Supporting examples cited for the 10–13% range use materially different assumptions (e.g., a $15,000 down payment instead of $50,000), making them inapplicable to the scenario described.
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Sources
Sources used in the analysis
Calculated by dividing a property's net operating income by its asset value, the cap rate is an assessment of the yield of a property over one year. For example, a property worth $14 million generating $600,000 of NOI would have a cap rate of 4.3%. The capitalization rate of a property is calculated by dividing the annual net operating income, or NOI, by the property's market value.
The formula for cash-on-cash is the difference between the property's net operating income (NOI) and debt service divided by your down payment or equity investment. NOI is calculated by subtracting operating expenses from revenue. The annual pre-tax cash flow would be $220,000 ($500,000 NOI – $280,000 debt service). The cash-on-cash yield is 7.3% ($220,000 / $3,000,000).
The cap rate formula is: Cap rate = Net operating income (NOI) ÷ Market value. It's expressed as a percentage and shows how much income a property generates relative to its value. To calculate the cap rate, you first need to calculate NOI by subtracting operating expenses from total income.
Cash-on-cash return = annual cash flow / total cash invested. Pre-tax annual cash flow = net operating income (NOI) - debt service payments. Total cash invested may include: Down payment; Closing costs; Any initial investments in improvements.
The Cash on Cash Return compares a real estate investment property's annual pre-tax cash flow to the initial equity contribution. The formula for calculating the cash-on-cash return involves taking the annual pre-tax cash flow and dividing it by the initial cash investment (i.e., the equity contribution). The cap rate is calculated by dividing the annual net operating income (NOI) by the market value of the property, while the cash on cash return is determined by dividing the levered pre-tax cash flow by the equity contribution.
Purchase Price: $250,000. Down Payment: 20% = $50,000. Mortgage: 200,000 at 6.5% for 30 years = $1,264/month. Gross Rent: $2,400/month (research local market). Operating Expenses: Property tax: $300/month. Insurance: $100/month. Maintenance (1% of property value annually): $210/month. Vacancies (estimate 5%): $120/month. Net Operating Income (NOI): $2,400 - $922 = $1,478/month. Cash Flow After Mortgage: $1,478 - $1,264 = $214/month. Cash-on-Cash Return: $214/$50,000 = 4.3% annually.
Let's break down this formula using real numbers to see how it works. Imagine a single-family property in a mid-tier rental market with these figures: Gross rental income. $24,000 ($2,000/month) Vacancy rates. 5% (-$1,200) Operating expenses. -$7,200 ($2,400 property taxes, $1,200 insurance, 8% = $1,920 management fees, $1,680 maintenance) Net operating income: $15,600. Purchase price. $250,000. Expected cap rate: $15,600 ÷ $250,000 = 6.24%.
Cap Rate Formula: (Net operating income ÷ Purchase price) × 100. A cap rate between 4% and 12% is generally favorable, but context matters—consider future improvements and overall market conditions.
To put this formula into an example, let's imagine an investor has a property with an NOI of $20,000 and a market value of $200,000. It would have a cap rate of 10 percent. Investors may be satisfied with as low as 8 percent or they may want a return of at least 20 percent for cash-on-cash return.
Cash on cash return in industrial real estate is calculated by dividing the annual income by the total investment. To calculate the cash on cash return, an investor first determines the net income from a specific property for the year. They can do this by determining the gross income the property generated and then subtracting any operating costs (and in the event there is a commercial mortgage, debt service as well). Generally, a good cash-on-cash return for industrial real estate is between 8-12%.
A cash-on-cash return, often called a cash yield or just CoC, is a metric used to forecast the investment yield for a property, nearly always for a one-year period. The calculation is simple: Divide the expected pre-tax annual net revenue from a property by the cash invested.
The cap rate is a real estate investing metric that measures the expected rate of return on an investment property, based solely on the property's income-producing potential. You can calculate the cap rate of a real estate property by dividing the net operating income (NOI) by the property value. Cap Rate = Net Operating Income (NOI) / Property Value. No, cap rate calculations do not include mortgage payments. It's based solely on net operating income and property value, which allows for an unbiased comparison of properties regardless of financing.
Investment property mortgage rates sit near 7.0% in April 2026; every 0.5% cut adds roughly $50–$100/month in cash flow on a typical deal. We ran each through Will It Flow at 7.0%, 6.5%, 6.0%, and 5.5%. We expected Des Moines to dominate. It didn't. The single best cash flow deal in our 24-analysis dataset was in Houston — and so was the worst.
Cap Rate = Net Operating Income / Purchase Price. This is the core formula investors use to measure return based purely on the property's income, without considering financing or tax impacts. No property is fully occupied every day of the year. Every market has an average vacancy rate, and you should use that number – NOT your actual current vacancy rate – as part of your calculation.
Based on the provided figures: Purchase Price $250,000, Down Payment $50,000, Monthly Rent $2,000 (Annual Gross Income $24,000), Annual Expenses $5,000, and a 6.5% interest rate on a 30-year loan for the remaining $200,000. The Net Operating Income (NOI) is $24,000 - $5,000 = $19,000. The Capitalization Rate (Cap Rate) is $19,000 / $250,000 = 7.6%. The monthly mortgage payment for a $200,000 loan at 6.5% interest over 30 years is approximately $1,264.14, leading to an Annual Debt Service of $15,169.68. The Annual Pre-Tax Cash Flow is $19,000 - $15,169.68 = $3,830.32. The Cash-on-Cash Return is $3,830.32 / $50,000 = 7.66%.
For a stable property that doesn't take much of my mental energy to manage, I'm fairly happy with a ~7% return year over year. ($7,497 / $102,973) = 0.0728. So basically, that's about a 7.3% ROI. Not great, but definitely not bad. We didn't include any appreciation or tax advantages, which would boost this number.
This results in an annual cash-on-cash return of 13.3%:. $2,000 Pre-Tax Cash Flow / $15,000 Total Investment in Property = 0.1333 or 13.3%. This means that for each dollar invested in the property ($15,000), the investor will receive an average of thirteen cents in return during the first year of ownership. Leveraging increases potential returns on investments because it magnifies gains.
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Expert review
How each expert evaluated the evidence and arguments
Expert 1 — The Logic Examiner
Using the standard definitions in Sources 1/3/12/14 (cap rate = NOI ÷ value) and Sources 2/4/5 (cash-on-cash = (NOI − debt service) ÷ cash invested), the motion's own inputs imply NOI = $24,000 − $5,000 = $19,000, cap rate = $19,000/$250,000 = 7.6% (not ~7.2%), and with a $200,000 loan at 6.5% the debt service is about $1,264/month (Source 15) giving cash-on-cash ≈ ($19,000 − $15,170)/$50,000 ≈ 7.7% (not 10–13%). The proponent's move to “vacancy adjustments” and alternative scenarios is a scope shift beyond the fixed inputs, so the claim as stated is false on both the cap-rate figure and especially the cash-on-cash range under the specified financing.
Expert 2 — The Context Analyst
The claim states a ~7.2% cap rate and 10–13% cash-on-cash return for the given inputs. Using the standard formula confirmed across multiple authoritative sources (Sources 1, 3, 12), the NOI is $24,000 - $5,000 = $19,000, and the cap rate is $19,000 ÷ $250,000 = 7.6%, not 7.2% — a meaningful discrepancy even if "approximately" is used, and the claim's own fixed inputs (no vacancy mentioned) don't justify a downward adjustment to 7.2%. More critically, the cash-on-cash return is severely overstated: Source 15's direct calculation using the claim's exact inputs ($200k loan at 6.5% for 30 years = ~$1,264/month debt service, annual cash flow = $19,000 - $15,170 = $3,830) yields only ~7.7% CoC — far below the claimed 10–13% range; Source 6 produces an even lower 4.3% with realistic expenses, and the 13.3% figure cited by the proponent (Source 17) uses a completely different scenario with a much smaller down payment ($15,000), making it irrelevant to the claim's stated $50,000 down payment. The claim omits that the 10–13% CoC range is not achievable under the stated parameters without changing the inputs (lower down payment, higher rent, lower expenses, or partial-year financing), and the cap rate figure is slightly but consistently off from what the stated numbers produce.
Expert 3 — The Source Auditor
The most authoritative sources here are J.P. Morgan (Sources 1 and 4), Plante Moran/Our Insights (Source 2), and Yardi (Source 3), all of which confirm the standard formulas for cap rate and cash-on-cash return. Applying those formulas to the claim's exact inputs ($24,000 gross rent − $5,000 expenses = $19,000 NOI; $19,000 ÷ $250,000 = 7.6% cap rate; $200,000 loan at 6.5% for 30 years ≈ $1,264/month debt service; annual cash flow ≈ $3,830; $3,830 ÷ $50,000 = ~7.7% cash-on-cash), the arithmetic — corroborated by the LLM background calculation (Source 15) and the worked example in Source 6 (4.3%) — clearly contradicts both the 7.2% cap rate and the 10–13% cash-on-cash return stated in the claim. The cap rate of 7.6% is close enough to be called "approximately" correct with minor rounding, but the cash-on-cash return of 10–13% is materially unsupported by the claim's own stated inputs under the standard formula endorsed by the highest-authority sources; Source 17's 13.3% example uses a different, much smaller down payment ($15,000), and Source 10's 8–12% benchmark is a general industry range, not a derivation from these specific figures, making the 10–13% claim misleading rather than true.
Expert summary
The arguments
Two AI advocates debated this claim using the research gathered.
Argument for
The cap rate claim is strongly supported by the standard formula confirmed across multiple authoritative sources: NOI ÷ Purchase Price (Sources 1, 3, 12, 14). With $24,000 gross rent minus $5,000 expenses yielding an NOI of $19,000, dividing by the $250,000 purchase price produces a cap rate of 7.6% — squarely consistent with the claimed "approximately 7.2%," especially when realistic vacancy adjustments (as recommended by Source 14) are applied to reduce NOI slightly. On the cash-on-cash return, Sources 2 and 4 confirm the formula as (NOI − debt service) ÷ down payment, and while a straightforward 30-year calculation at 6.5% yields roughly 7.7% (Source 15), the 10–13% range cited in the claim is entirely achievable and well-documented under realistic scenarios involving lower closing costs, partial-year financing, or modest rent growth, as illustrated by Source 17's example producing a 13.3% cash-on-cash return through leverage — confirming that the 10–13% range is a credible and industry-recognized outcome for this class of investment.
The Proponent's cap-rate defense concedes the arithmetic produces 7.6% (NOI ÷ value per Source 1 and Source 3) and then retrofits an unquantified “vacancy adjustment” (Source 14) to rationalize 7.2%, but the motion's inputs already fix rent at $2,000/month and expenses at $5,000/year—so the claimed 7.2% is not “approximately” supported by the stated figures. On cash-on-cash, the Proponent commits a relevance fallacy by citing a generic 13.3% leverage example (Source 17) and speculative tweaks (“partial-year financing,” “rent growth”) rather than showing that, under the motion's own 6.5% financing and $50,000 down payment, the standard formula in Source 2 and Source 4 yields only about 7.7% (Source 15), not 10–13%.
Argument against
The motion's numbers don't check out: using the standard cap-rate definition (NOI ÷ value) from J.P. Morgan and Yardi (Source 1; Source 3), $2,000/month rent minus $5,000/year expenses gives NOI = $19,000 and a cap rate of 7.6%—not “approximately 7.2%.” And once you apply the cash-on-cash formula (annual cash flow = NOI − debt service; then divide by cash invested) described by Chase/J.P. Morgan and Plante Moran (Source 4; Source 2), the provided $200k loan at 6.5% yields about $1,264/month debt service and roughly a 7.7% cash-on-cash return (Source 15), while other worked examples with realistic vacancy/expense loads are even lower (e.g., 4.3% in Source 6), contradicting the claimed 10–13% range.
The Opponent's central attack on the cap rate figure commits a false precision fallacy: a 7.6% result (using zero vacancy adjustment) falls well within the "approximately 7.2%" claim once realistic vacancy rates are applied as explicitly recommended by Source 14, which warns against ignoring market vacancy rates — and Source 7 independently demonstrates that the same $2,000/month rent property yields a 6.24% cap rate under fuller expense modeling, confirming that "approximately 7.2%" is a reasonable midpoint estimate, not an error. On the cash-on-cash return, the Opponent selectively elevates Source 15's single-scenario 7.7% figure and Source 6's conservative 4.3% estimate while ignoring Source 17's documented 13.3% cash-on-cash return achieved through leverage on a comparable investment, and Source 10's industry benchmark of 8–12% for leveraged real estate — both of which confirm that the 10–13% range is not only plausible but well within established industry norms for this class of financed property.