Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Cash-on-cash return measures actual cash flow against actual cash invested, borrowing and all, which is a genuinely different question from an unleveraged return on the property's full value. The identical property can show very different cash-on-cash figures depending purely on how much of the purchase was financed versus paid in cash.
Before you rely on it
What to check
Confirm the cash-invested figure includes every actual out-of-pocket cost, down payment, closing costs, initial repairs, not just the down payment alone.
The common error
Where people go wrong with cash-on-cash return calculator
Comparing cash-on-cash returns across properties with very different financing structures as if the metric measured the same thing each time. More borrowing mechanically raises cash-on-cash return on an identical property, independent of whether the underlying deal actually improved.
Sensitivity evidence
How annual pre-tax cash flow changes the cash-on-cash return
| Annual pre-tax cash flow | Cash-on-cash return | Total cash invested |
|---|---|---|
| $9,600 | 8.7% | $110,000 |
| $10,800 | 9.8% | $110,000 |
| $12,000worked example | 10.9% | $110,000 |
| $13,200 | 12.0% | $110,000 |
| $14,400 | 13.1% | $110,000 |
Every input, tested
Which input moves the cash-on-cash return most
| Input | Tested from | To | Cash-on-cash return at each end | Swing |
|---|---|---|---|---|
| Annual pre-tax cash flow | $10,800 | $13,200 | 9.8% to 12.0% | 2.2% (20%) |
| Down payment | $81,000 | $99,000 | 11.9% to 10.1% | 1.8% (16%) |
| Closing and acquisition costs | $10,800 | $13,200 | 11.0% to 10.8% | 0.238% (2.2%) |
| Initial repairs | $7,200 | $8,800 | 11.0% to 10.8% | 0.159% (1.5%) |
Two variables at once
Cash-on-cash return by annual pre-tax cash flow and down payment
| Annual pre-tax cash flow \ Down payment | $72,000 | $90,000 | $108,000 |
|---|---|---|---|
| $9,600 | 10.4% | 8.7% | 7.5% |
| $10,800 | 11.7% | 9.8% | 8.4% |
| $12,000 | 13.0% | 10.9% | 9.4% |
| $13,200 | 14.3% | 12.0% | 10.3% |
| $14,400 | 15.7% | 13.1% | 11.3% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Annual pre-tax cash flow | $12,000 |
| Down payment | $90,000 |
| Closing and acquisition costs | $12,000 |
| Initial repairs | $8,000 |
| Cash-on-cash return | 10.9% |
| Total cash invested | $110,000 |
Where the inputs come from
Annual pre-tax cash flow is rent collected minus operating expenses and mortgage payments for a year. Total cash invested includes the down payment, closing and acquisition costs and initial repairs, everything that came out of your pocket to get the property running. Use actual quotes for closing costs and repairs. If you paid part of the price with a loan and part with a partner's money, use only your own cash.
When the result stops applying
It counts only cash flow, not principal paydown, appreciation or tax benefits, so it understates the total return for a property that grows in value and overstates it for one that needs big repairs. It uses one year's cash flow, which changes as rents and costs change. The result is before tax. Cash-out refinances complicate the invested amount.
What to compare it with
See total return with the rental property ROI calculator, and the yield on price with the cap rate page. The rental cash flow calculator gives the monthly numbers, and the DSCR and break-even occupancy pages test risk. The BRRRR calculator applies when a refinance returns your cash.
People also ask
Frequently asked questions
What is a good cash-on-cash return?
Many investors look for 8% to 12%, but it depends on risk, market and alternatives. A return below a safe investment's yield is hard to justify given the work involved.
How is cash-on-cash different from cap rate?
Cash-on-cash uses cash flow after mortgage payments and the money you actually invested, while cap rate uses income before financing against the property value.
What counts as cash invested?
The down payment, closing costs, initial repairs and any other cash you put in to buy and prepare the property.