What is Cash-on-Cash Return?
Cash-on-cash return is your annual pre-tax cash flow divided by the total cash you put into a deal — down payment, closing costs, and any upfront rehab. Unlike cap rate, it reflects your financing.
It answers the question investors actually care about: for every dollar of my own money in this property, how much cash comes back each year?
Formula
Cash-on-cash = Annual pre-tax cash flow ÷ Total cash invested. Cash flow = rent − operating expenses − mortgage payments; cash invested = down payment + closing costs + rehab.
How to read it
- Many buy-and-hold investors target 8%+ cash-on-cash, but it varies widely by market and strategy.
- More leverage (a bigger loan) can raise cash-on-cash — but also raises risk if rents dip or rates reset.
- A negative number means the property loses money monthly after the mortgage; positive means it cash-flows.
Frequently asked questions
- What's a good cash-on-cash return?
- 8%+ is a common buy-and-hold benchmark, but flippers and BRRRR investors chase higher (or infinite, if they pull all their cash back out). Judge it against your other options for the same money.
- Cash-on-cash vs. cap rate — what's the difference?
- Cap rate ignores your loan (unleveraged); cash-on-cash includes it. Two investors buying the same property at different down payments get the same cap rate but different cash-on-cash returns.