Cap Rate vs Cash-on-Cash for a San Antonio Rental: Which Metric Actually Matters

Cap rate tells you what a property yields unlevered — as if you paid cash. Cash-on-cash tells you what your actual dollars are earning after the mortgage. For a San Antonio landlord deciding between a $240K turnkey in Converse and a $310K value-add in Mahncke Park, those are two different conversations, and using the wrong metric is how investors end up house-poor on a paper-profitable deal.

Use cap rate to compare properties against each other and against the market. Use cash-on-cash to decide whether your capital is working harder here than it would somewhere else. Neither number, by itself, tells you if a deal is good.

The formulas, and what actually goes in them

Cap rate = Net Operating Income ÷ Purchase Price (or current value).

Cash-on-cash return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested.

The formulas are simple. The inputs are where investors lie to themselves.

NOI is gross rent minus operating expenses — not including the mortgage. For a Bexar County single-family rental, operating expenses include:

• Property taxes (Bexar County total rate commonly lands in the 2.1%–2.8% range of assessed value depending on city, ISD, and MUDs — Alamo Heights, Converse, and Schertz-Cibolo ISD all bite differently)
• Landlord insurance (higher than owner-occupied; hail is the reason)
• Property management (typically 8%–10% of collected rent in SA, plus a leasing fee)
• Repairs and maintenance (budget 5%–10% of rent; older homes in 78201, 78210, 78211 trend higher)
• Vacancy (5%–8% is realistic for most of Bexar County; tighter in Stone Oak and Alamo Heights, looser on the far south and east sides)
• Lawn, pest, HOA where applicable
• CapEx reserves (roofs, HVAC, water heaters — don't skip this line)

Annual cash flow is NOI minus debt service (principal + interest). Total cash invested is down payment + closing costs + rehab + any holding costs before the first tenant.

When cap rate is the right lens

Cap rate strips financing out of the picture, which is exactly what you want when you're doing three things:

• Comparing one SA property to another. A 6.2% cap in Mahncke Park and a 7.8% cap in Camelot II tell you the market is paying more for the Mahncke Park location — lower yield, higher expected appreciation. That's a real trade-off, not a mistake.
• Valuing a small multifamily. Duplexes, triplexes, and fourplexes in SA trade on cap rate. If fourplexes in 78223 are trading at a 7% cap and the seller wants a price that implies a 5.5% cap, you have a negotiating position grounded in comps, not vibes.
• Sanity-checking against the 10-year Treasury. If the risk-free rate is 4.3% and a stabilized SA rental is quoted at a 5% cap, you're being paid 70 bps to take on tenants, toilets, and Texas property tax volatility. That's a bad trade.

Cap rate is also what you'll use when you eventually sell. Buyers won't care what your note rate was. They'll care what the property produces.

When cash-on-cash is the right lens

Cash-on-cash answers the only question that matters when you're writing the check: what is my money earning here?

It's the right metric when:

• You're financing the deal. Leverage magnifies returns in both directions. A 6% cap property at a 7.2% mortgage rate produces negative cash-on-cash even though the asset yields positive NOI. This is the core reason a lot of 2024–2025 SA deals didn't pencil.
• You're choosing between deploying capital here vs. elsewhere. $80K down on a Schertz SFR vs. $80K in an index fund vs. $80K into paying down a higher-rate note — cash-on-cash puts them in the same units.
• You're running BRRRR math. Post-refinance, if you pulled all your capital out, cash-on-cash is infinite, and the metric stops being useful. Before refi, it tells you how long you're sitting on dead money.
• You're scaling a portfolio. At property #4 or #5, DSCR lenders will test the debt-service coverage, but you should be testing cash-on-cash on every deal. Anything under 6%–7% in today's SA market needs a strong appreciation thesis behind it.

A real-ish San Antonio example

Take a $260,000 3/2 SFR in Converse (78109), inside Judson ISD. Market rent: $1,950. You put 25% down on a DSCR loan at 7.5%, 30-year amortization. Closing costs and minor turn: $10,000.

• Gross rent: $23,400
• Vacancy 6%: ($1,404)
• Taxes (2.5% of $260K): ($6,500)
• Insurance: ($2,400)
• Management 9%: ($2,106)
• Maintenance 7%: ($1,638)
• CapEx reserve 5%: ($1,170)
• NOI: ~$8,182
• Cap rate: 3.15%

Debt service on $195K at 7.5%: ~$16,360/yr. Cash flow = $8,182 − $16,360 = negative $8,178. Cash invested = $65K down + $10K = $75K. Cash-on-cash: −10.9%.

The cap rate told you this was a thin deal against Treasuries. The cash-on-cash told you it's a losing deal at today's rates unless rents move, you buy it down, or you negotiate the price to around $215K.

Flip one variable — say you assume the loan at 4.25% using TREC's Loan Assumption Addendum (49-1) on an older FHA note — and the same property becomes a 7%+ cash-on-cash deal without changing anything else. That's why financing structure matters as much as the asset.

How the two metrics diverge by SA submarket

Submarket	Typical cap rate	Typical cash-on-cash at 25% down	What you're really buying
Alamo Heights (78209), Terrell Hills	3.5%–4.5%	Often negative with a new loan	Appreciation, AHISD, land scarcity
Stone Oak / 78258	4%–5%	0%–3%	NEISD schools, tenant quality
Southtown / King William (78204)	4.5%–5.5%	Low single digits	STR optionality, downtown proximity
Converse / Live Oak / Universal City	5.5%–6.5%	3%–6%	JBSA-Randolph tenant base
Far West / Far South (78224, 78252)	6.5%–8%+	6%–10%	Pure cash flow, weaker appreciation
Schertz / Cibolo (Comal County portion)	5%–6%	3%–6%	Schools + growth corridor

These are directional ranges from recent SABOR cycles, not guarantees. Pull your own comps before you underwrite.

What most people get wrong

• Using Zillow rent estimates as NOI inputs. Pull actual leased comps from SABOR or ask a leasing agent what the last three comparable homes in that ZIP actually rented for. Algorithmic rent estimates are consistently high on the east and south sides and low in Stone Oak.
• Forgetting that Bexar County taxes reassess on sale. BCAD will re-appraise near your purchase price. If you bought a property that was under-assessed for a decade, your year-one tax bill can jump 30%+ over the seller's. Model the post-sale tax basis, and file your homestead Form 50-114 only if you're owner-occupying — a pure rental doesn't qualify for § 11.13.
• Treating the mortgage P&I as an expense in cap rate. It isn't. Cap rate is unlevered by definition. Mixing them produces a number that's neither.
• Ignoring CapEx until the AC dies in August. A 15-year-old condenser in a Converse rental is a $7K event. Reserve for it or your cash-on-cash is fiction.
• Chasing cap rate into 78207 without pricing in management reality. High-yield ZIPs on paper can deliver sub-zero real returns once you account for turn costs, evictions through Bexar County JP courts (Precincts 1–4, 3-day notice under Texas Property Code § 24.005, then 10–21 days to hearing), and longer vacancies.
• Underwriting with today's rent and yesterday's tax bill. Use the BCAD public search to see the current assessed value and the rate sheet for the taxing entities (city, county, ISD, maybe ESD and SAWS impact). Don't trust the listing's tax figure.
• Confusing cash-on-cash with total return. Cash-on-cash ignores principal paydown and appreciation. A 4% cash-on-cash deal in 78209 with 4% annual appreciation and $4K/yr of paydown is beating an 8% cash-on-cash deal in a flat submarket. Run both.

The decision framework

For any SA rental you're underwriting, compute both metrics, then ask:

1. Is the cap rate at least 150–200 bps over the 10-year Treasury? If not, you need an appreciation or tax-advantage thesis to justify the deal.
2. Is cash-on-cash at least 6%–8% in year one, or is there a clear path to it within 24 months (rent bump, refi, value-add)?
3. Does the total return — cash flow + paydown + conservative appreciation — beat what the same capital does in a liquid alternative?

If two of the three are yes, it's probably a deal. If only cap rate pencils, you're buying an asset, not an income stream. If only cash-on-cash pencils, you're probably using cheap assumed debt that won't be there forever.

When you're ready to underwrite specific properties, browse active rental comps and listings at /rentals, or find an investor-focused agent at /agents who can pull actual SABOR lease data rather than estimates. More investor-side breakdowns live at /resources.