Cash-on-Cash Return
Annual pre-tax cash flow divided by the total cash invested, as a percentage. It measures the leveraged yield on the actual dollars you put into a deal — the return a rental investor feels in their pocket.
Cash-on-cash return (CoC) measures the annual pre-tax cash flow a property generates relative to the cash you actually invested:
Cash-on-Cash = Annual Pre-Tax Cash Flow ÷ Total Cash Invested
Unlike cap rate, which is unleveraged, cash-on-cash captures the effect of your financing. It's the number that tells a buy-and-hold investor what their down payment is actually earning.
The two inputs
Annual pre-tax cash flow is NOI minus annual debt service:
Cash Flow = NOI − (12 × monthly mortgage payment)
Total cash invested is everything you put in to acquire the property:
- Down payment
- Closing costs and lender fees / points
- Upfront repairs or make-ready
A worked example
| Item | Amount |
|---|---|
| NOI | $30,000 |
| Annual debt service | −$21,600 |
| Annual cash flow | $8,400 |
| Down payment (25% of $500k) | $125,000 |
| Closing costs + points | $12,000 |
| Initial repairs | $8,000 |
| Total cash invested | $145,000 |
| Cash-on-cash return | 5.8% |
Why leverage changes everything
Cash-on-cash is where financing does its work. The same property bought all-cash might show a 6% return (equal to its cap rate); financed at 75% LTV, the smaller cash outlay can push cash-on-cash higher when the loan rate is below the cap rate — positive leverage. When the loan rate exceeds the cap rate, leverage drags the return down (negative leverage). This is exactly why investors model cash-on-cash before locking a DSCR rate.
What it leaves out
Cash-on-cash is a first-year, pre-tax snapshot. It ignores principal paydown (which builds equity), appreciation, tax benefits like depreciation, and changes over time. For a full picture, pair it with cap rate, equity build, and your projected hold-period return. But for quickly comparing how hard your cash is working across deals, cash-on-cash is the investor's go-to.
Frequently asked questions
What's a good cash-on-cash return?
Many buy-and-hold investors target 6–10%+ cash-on-cash, but the right number depends on your market, leverage, and goals. In appreciation-heavy markets, investors accept lower cash-on-cash for upside; in cash-flow markets, they expect more. Compare it against alternative uses of the same capital.
How is cash-on-cash different from ROI?
Cash-on-cash divides only your annual cash flow by the cash you invested — a single-year, pre-tax measure. Total ROI adds principal paydown, appreciation, and tax effects over the full hold. Cash-on-cash is narrower but easier to compute and compare across deals quickly.
Does cash-on-cash include my mortgage payment?
Yes — that's the key difference from cap rate. Cash-on-cash subtracts debt service to get the cash flow you actually pocket, then divides by your invested cash. It directly reflects how your financing terms affect the return on your down payment.