Cash-on-cash return is annual pre-tax cash flow divided by the actual cash invested in a property.
Frequently asked questions
What is cash-on-cash return in real estate?
Cash-on-cash (CoC) return measures your annual pre-tax cash flow as a percentage of the total cash you invested to acquire and stabilize the property. It's the most direct answer to the question: 'What is my actual cash yield on the money I put in?' Formula: CoC = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100. A property generating $6,000 per year on $60,000 of invested cash has a 10% cash-on-cash return.
What is a good cash-on-cash return?
Most buy-and-hold investors target 8–12% CoC return as a minimum. BRRRR investors often target 15–20% because capital recycling reduces the denominator (invested cash) after refinance. Single-family rentals in hot coastal markets may yield only 3–5% CoC because valuations are driven by appreciation expectations rather than income. As a rough benchmark: below 6% is hard to justify, 8–10% is solid, 12%+ is excellent, and anything generating 20%+ deserves close scrutiny of the assumptions.
How is cash-on-cash different from cap rate and ROI?
Three different questions, three different tools. Cap rate ignores financing (it's the property's unleveraged yield). CoC includes your actual financing costs and measures your personal cash yield. Total ROI (sometimes called 'equity return') adds equity paydown and appreciation on top of cash flow — it's the best long-term performance metric but requires projecting market conditions. Use cap rate to screen and compare properties; use CoC to decide whether your financing structure works; use total ROI to track long-term wealth creation.
Does cash-on-cash return include principal paydown?
No. Pure cash-on-cash return is strictly pre-tax cash flow ÷ invested capital. Principal paydown (mortgage amortization) is a real economic gain — each payment chips away at debt and builds equity — but it's not cash in your pocket each month. A comprehensive return analysis includes cash flow + principal paydown + appreciation, often called total return or equity multiple over a hold period. For pure cash-yield analysis, stick with CoC. For full wealth creation analysis, run a complete hold-period model.
What counts as 'total cash invested'?
Total cash invested is every dollar you write a check for before the property cash-flows: down payment, buyer's closing costs, immediate repairs or rehab needed before the first tenant, furnishing (for short-term rentals), and initial reserves you're required to escrow. It does NOT include the financed loan amount — you didn't write that check. The most common mistake is forgetting closing costs and initial repairs, which understates total cash invested and inflates apparent CoC returns.