Cash-on-Cash Return Calculator
Cash-on-cash return measures the annual pre-tax cash flow a property produces against the cash you actually invested — down payment, closing costs, and upfront repairs. Unlike cap rate, it reflects your financing, so it answers the question investors actually ask: what is my money earning this year?
Annual pre-tax cash flow: $2,865
Cash-on-cash return: 2.4%
The formula
Cash-on-Cash = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100
Annual pre-tax cash flow is NOI minus annual debt service. Total cash invested is everything out of pocket: down payment, closing costs, and initial repairs or stabilization budget.
Worked example
- A property rents for $4,500/month with $1,600/month of operating expenses — $34,800 of annual NOI.
- Its $400,000 loan at 7.0% over 30 years costs $2,661/month — $31,937 of annual debt service.
- Annual pre-tax cash flow = $34,800 − $31,937 = $2,863.
- With $120,000 of total cash invested, cash-on-cash = $2,863 ÷ $120,000 = 2.4%.
A thin 2.4% cash-on-cash is common for newly financed properties at today’s rates — the metric makes the cost of leverage visible in a way cap rate never does.
There is no universal “good” cash-on-cash return — many buy-and-hold investors target mid-to-high single digits, while value-add deals are underwritten to improve a thin year-one number over time.
Frequently asked questions
- What is a good cash-on-cash return?
- It depends on strategy and rates. Many long-term rental investors target mid-to-high single digits; a low year-one number can still be a good deal if rents are below market or the loan will be refinanced. Compare against your alternatives, not a fixed rule.
- Does cash-on-cash include appreciation or principal paydown?
- No — it is a pure cash-flow metric. Appreciation, loan amortization, and tax benefits are real returns but show up in total-return metrics like IRR, not cash-on-cash.
- Why is my cash-on-cash lower than my cap rate?
- Because of leverage cost. When your loan’s effective annual cost exceeds the property’s cap rate (negative leverage), financing drags the cash return below the unlevered return — common when interest rates rise faster than rents.
Run the whole deal, not just one number
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