What Is Cash-on-Cash Return?
Cash-on-cash return is a rental property's annual pre-tax cash flow divided by the total cash invested, such as the down payment, closing costs and initial repairs. It is used when comparing financed investments, and matters because it shows what the investor's own money earns after mortgage payments.
Cash-on-Cash Return in plain English
Cash-on-cash return tells you what your own money is earning. If you put $90,000 into a rental and it puts $7,200 a year into your pocket after the mortgage, your cash-on-cash return is 8%.
Unlike cap rate, it includes the loan, so a bigger down payment or a lower interest rate changes the answer.
Formula
Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100- Annual Pre-Tax Cash Flow
- NOI minus a year of mortgage payments (and any reserves you set aside), before income taxes.
- Total Cash Invested
- Down payment, closing costs, initial repairs and other cash you put in to acquire the property.
First-year, pre-tax measure; excludes appreciation and principal paydown.
Worked example
Cash-on-cash return with a 25% down payment
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Purchase price
- $300,000
- Down payment
- 25% ($75,000)
- Closing costs and initial repairs
- $9,000 and $6,000
- Loan
- $225,000 at 7.00%, 30 years
- Net operating income
- $25,200 a year
| Step | Calculation | Result |
|---|---|---|
| 1. Total cash invested | $75,000 + $9,000 + $6,000 | $90,000 |
| 2. Monthly principal and interest | $225,000 at 7.00% over 360 months | $1,496.93 |
| 3. Annual debt service | $1,496.93 × 12 | $17,963 |
| 4. Annual pre-tax cash flow | $25,200 − $17,963 | $7,237 |
| 5. Cash-on-cash return | $7,237 ÷ $90,000 × 100 | 8.04% |
Cash-on-cash return: 8.04%. Each year the investor receives about 8.0% of the cash they put in, before income taxes. The same property's cap rate is 8.40%, which ignores the loan entirely.
What this calculation leaves out
- Pre-tax and first-year only: it ignores appreciation, principal paydown and tax effects.
- Leave reserves out of "cash invested" only if you are sure you will not need them; many investors include them.
- A higher rate or a vacancy month can turn a thin cash flow negative - test the downside.
Try it: Cash-on-Cash Return with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
Cash-on-cash return and leverage
Cash-on-cash return is the yearly cash flow divided by the cash you put in. The down payment changes both sides, so the same property can return very different rates.
- Cash-on-cash return
- 3.48%
- First-year, before tax
- Cash invested
- $88,000
- Down payment and closing costs
- Yearly cash flow
- $3,064
Show the numbers as a table
| Down payment | Cash invested | Cash flow / year | Cash-on-cash | Cap rate |
|---|---|---|---|---|
| 20% | $72,000 | $1,819 | 2.53% | 7.33% |
| 25% | $88,000 | $3,064 | 3.48% | 7.33% |
| 35% | $120,000 | $5,555 | 4.63% | 7.33% |
| 50% | $168,000 | $9,291 | 5.53% | 7.33% |
| 100% | $328,000 | $21,744 | 6.63% | 7.33% |
Formula
Cash-on-cash = Annual pre-tax cash flow ÷ Total cash invested × 100Assumptions
- 30-year fixed loan, no points; one unit with no other income, HOA or utilities.
- Vacancy is taken off gross rent; management, maintenance and the capital-expenditure reserve are a share of collected rent.
- The capital-expenditure reserve sits below NOI: it is cash set aside, not an operating expense.
- Income taxes, depreciation and appreciation are left out.
Why it matters
Unlike cap rate, cash-on-cash return accounts for financing — it reflects the actual return on the money an investor put down, not the property's full value.
It is the clearest way to compare a rental with other uses of the same cash. If a property returns 3% cash-on-cash while safer options pay more, it needs strong appreciation to justify the risk.
What it means for you
How does it affect an investment?
Use it to decide how much to borrow: compare cash-on-cash returns at different down payments, and test a higher rate and a vacancy month before you commit.
Common mistakes
- Leaving closing costs and initial repairs out of cash invested.
- Using pro forma rent or ignoring vacancy and reserves.
- Comparing cash-on-cash returns that use different loan terms.
Cap Rate vs. Cash-on-Cash Return
Property-level operating return before financing — NOI divided by property value. Useful for comparing properties independent of how they're financed.
Return relative to the actual cash invested — the down payment, closing costs, and upfront renovation spend — after accounting for financing.
Full comparison: Cap Rate vs Cash-on-Cash Return, with a worked example →
Compare and common questions
Cash-on-Cash Return: frequently asked questions
What is a good cash-on-cash return?
It depends on your alternatives and risk tolerance; there is no universal target. Many investors set a minimum before buying and compare it with what the same cash could earn elsewhere.
Is cash-on-cash return the same as ROI?
No. Cash-on-cash return counts only one year of cash flow. ROI and IRR can also include appreciation, loan paydown and sale proceeds.
Why can cash-on-cash return be higher than the cap rate?
When the loan costs less than the property yields, borrowing increases the return on your cash. When the loan costs more, cash-on-cash return falls below the cap rate.
Go deeper
Recommended calculators
Run Cash-on-Cash Return with your own numbers:
Where it fits
- Investing, Acquisition: before this, Net Operating Income; next, Assignment of Contract.
More Investing Terms
Recommended next step
Test different down payments and rates on your deal.
Cash-on-cash return calculator →Apply it to a specific property: Cash-on-cash return report.
Sources and review
No regulator defines this term; the page follows common industry practice.
Where this applies: Industry convention - no single regulatory definition. Lenders and appraisers may define inputs differently.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
Apply these investment calculations to a real property
Run the numbers with the free calculator, or get a property-specific analysis built on the same calculations.
- Free calculatorCash-on-Cash Calculator →Runs in your browser; nothing to sign up for.
- Paid reportCash-on-Cash Return Analysis →Find out your actual annual return on the cash you invest. Price shown before checkout.
Or analyze a specific property: Essential Property Analysis, $19 · Property Decision Analysis, $49 · Professional Property Analysis, $99. You choose the depth before you pay.