What cash-on-cash return tells you
Cash-on-cash return is the metric real estate investors use to see how hard their invested dollars are working. Unlike cap rate, which ignores financing, cash-on-cash return is based on your actual out-of-pocket cash and the actual cash flow after the mortgage. That makes it the most practical yardstick when you're using leverage.
The formula has three steps:
- Monthly cash flow = monthly rent − operating expenses − mortgage payment.
- Annual cash flow = monthly cash flow × 12.
- Cash-on-cash return = annual cash flow ÷ total cash invested × 100.
Worked example
A property rents for $2,000/month. Operating expenses (taxes, insurance, maintenance, management, vacancy reserve) run $500/month, and the mortgage payment is $1,000/month. That leaves monthly cash flow of $2,000 − $500 − $1,000 = $500, or $6,000/year. If you invested $60,000 in down payment, closing costs, and rehab, your cash-on-cash return is $6,000 ÷ $60,000 = 10%. Enter these numbers above to confirm.
What counts as cash invested
Include everything you paid out of pocket to acquire and stabilize the property: down payment, closing costs, loan fees, and any upfront rehab. Leaving out rehab is the most common way investors overstate their return.
What's a good number?
Many buy-and-hold investors target 8–12% cash-on-cash, but the right target depends on your market and strategy. In high-appreciation markets, investors often accept a lower cash-on-cash return in exchange for expected equity growth. Remember this metric is pre-tax — depreciation can meaningfully improve your after-tax return. See the rental depreciation calculator to estimate that shelter, and the depreciation recapture calculator for what happens at sale.
Frequently asked questions
What is cash-on-cash return?
The annual pre-tax cash flow a property produces as a percentage of the cash you invested — how hard your dollars work each year.
How is it calculated?
Monthly rent − expenses − mortgage, × 12 for annual cash flow, ÷ total cash invested × 100.
What is a good return?
Many investors target 8–12%, though it depends on market, risk, and whether you're buying for cash flow or appreciation.
What counts as cash invested?
Down payment + closing costs + upfront rehab — your total out-of-pocket to acquire and stabilize the property.
Related calculators
- Rental Property Depreciation Calculator — the deduction that improves after-tax returns.
- Depreciation Recapture Calculator — tax due when you sell.
- 1031 Exchange Calculator — defer tax and keep compounding.
- Cost Segregation Calculator — front-load depreciation.