Finance
Investing
Metrics
Cash-on-cash return answers a simple question: for every dollar of your own cash you put into a property, how many cents come back as cash each year? It’s the metric that best reflects a leveraged investor’s actual experience.
The formula
Cash-on-cash = Annual pre-tax cash flow ÷ Total cash invested
- Annual pre-tax cash flow = rental income − operating expenses − debt service (mortgage principal + interest).
- Total cash invested = down payment + closing costs + upfront repairs, i.e. the real money out of pocket, not the purchase price.
A worked example
- Purchase $300,000; 25% down = $75,000; closing + initial repairs = $15,000 → $90,000 cash in.
- Rent $2,500/mo → $30,000/yr. Operating expenses $9,000. Mortgage (P&I) $13,600/yr.
- Annual cash flow = $30,000 − $9,000 − $13,600 = $7,400.
- Cash-on-cash = $7,400 ÷ $90,000 = 8.2%.
Try your own numbers in the cash-on-cash calculator.
How it differs from cap rate and CAGR
- Cap rate = NOI ÷ property value, ignores financing, so it measures the asset, not your leveraged position.
- Cash-on-cash includes your loan, so it reflects the effect of leverage on your cash.
- CAGR measures the compounded annual growth of a value over time (e.g. equity or portfolio), while cash-on-cash is a single-year yield. Use the CAGR calculator for the growth-over-time view.
What a “good” number is
It depends on strategy and market, but many buy-and-hold investors target roughly 8–12% cash-on-cash. Pair it with cap rate and CAGR, no single metric tells the whole story.
Takeaway
Cash-on-cash is the clearest read on annual cash yield for a financed deal. Combine it with the growth picture, and see our mortgage pay-down hacks for how debt choices change the cash flow.