💰 Cash-on-Cash Return Calculator
Cap rate ignores your mortgage — cash-on-cash does not. See the true annual return on the cash you actually invested.
How Cash-on-Cash Return Works
Cash-on-cash answers the question investors actually care about: for each dollar I put in, how many cents come back per year? Unlike cap rate, it includes your financing — so leverage shows up directly in the number.
The Formula
Cash Invested = Down Payment + Closing Costs + Initial Repairs
Leverage is a double-edged sword: a smaller down payment boosts CoC when cash flow is positive — but also magnifies losses and risk if rents dip or rates rise. Most buy-and-hold investors target 8–12%+ cash-on-cash in the first year.
Worked Example
$70,000 down + $8,000 closing = $78,000 invested. Rent $2,200 minus $1,100 P&I, $220 tax, $110 insurance, $200 other = $570/mo cash flow, or $6,840/year. CoC = $6,840 ÷ $78,000 = 8.77% — beating most bonds and savings accounts while the tenant also pays down your mortgage.
Leverage: Amplifier, Not Magic
Cash-on-cash shines light on leverage: a $300,000 property with $60,000 down earning $6,000/year cash flow shows 10% cash-on-cash but only ~4–5% cap rate — the gap is leverage working for you. But leverage is symmetric: if rents dip or rates reset higher, cash-on-cash compresses faster than cap rate and can go negative while the property still "cash flows" on paper. Know what it hides: cash-on-cash ignores appreciation, principal paydown, and tax benefits — total return is always higher. It also ignores time: unlike IRR, it doesn't penalize capital trapped for years. Use cash-on-cash for year-one income screening and lender conversations, cap rate for comparing properties, and IRR for hold-period decisions.
Target benchmarks: most buy-and-hold investors want 8–12% cash-on-cash in year one — enough to beat passive alternatives with a risk premium. Below 6%, your capital is likely better deployed elsewhere unless appreciation or tax benefits are exceptional. Always compare against what the same down payment earns in an index fund (~10% long-run) to keep opportunity cost honest.
Frequently Asked Questions (FAQs)
What is a good cash-on-cash return?
8–12% is the common target for buy-and-hold rentals in the US. Below 6% you should ask whether the risk premium over bonds is worth it; above 15% usually signals high risk, heavy leverage, or an exceptional deal.
Cash-on-cash vs. cap rate — which matters?
Both. Cap rate measures the property; cash-on-cash measures your investment including financing. Use cap rate to compare properties, cash-on-cash to compare against other uses of your cash.
Does cash-on-cash include principal paydown?
No — only actual cash flow. But your total return is higher: add equity built through amortization (often 2–4% more per year) plus appreciation and tax benefits.
Can cash-on-cash be infinite?
Yes — if a refinance returns all your invested cash (the BRRRR ideal), you earn cash flow on $0 invested. It is real, but remember the debt and risk remain.
Is cash-on-cash before or after tax?
Conventionally before tax (pre-tax cash flow). After-tax CoC is more precise but requires your full tax picture including depreciation.
Last updated: September 2026
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Last updated: September 2026