Cash-on-Cash Return

Real Estate Investing
Updated Apr 2026 • Has calculator

The ratio of annual pre-tax cash flow to total cash invested, measuring the leveraged yield on a real estate investment.

What is Cash-on-Cash Return?

Cash-on-cash return measures how much cash income a property generates relative to the actual cash an investor has put in — the down payment, closing costs, and any immediate repairs. Unlike cap rate, which ignores financing, cash-on-cash reflects the real-world return for a leveraged buyer: a 5% cap rate property purchased with a 25% down payment and favorable mortgage terms might still yield a 10–12% cash-on-cash return. Most experienced real estate investors target at least 8% cash-on-cash to justify the illiquidity and management burden of owning rental property.

Formula

Cash-on-Cash Return (%) = (Annual Cash Flow / Cash Invested) × 100

Worked Example

Worked example — Single-Family Rental — Atlanta, GA

2024

Step 1  Purchase price: $300,000 | Down payment (25%): $75,000
Step 2  Closing costs + initial repairs: $10,000 | Total cash in: $85,000
Step 3  Monthly rent: $2,200 | Mortgage P+I: $1,200 | Expenses: $400
Step 4  Annual cash flow: ($2,200 − $1,200 − $400) × 12 = $7,200
Step 5  Cash-on-Cash = $7,200 / $85,000 × 100 = 8.47%
Step 6  → Exceeds the 8% benchmark for a qualifying cash-flow rental

Source: Investopedia — Cash-on-Cash Return (2024-01-01)

Calculate Cash-on-Cash Return

Annual rent minus ALL expenses including mortgage payments

Down payment + closing costs + initial repairs

Cash-on-Cash Return

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Not investment advice.

How to Interpret Cash-on-Cash Return

< 4
Below Target — consider stronger deals or better financing
4 – 8
Acceptable — meets baseline for most markets
8 – 14
Good — strong cash flow, typical target for investors
> 14
Excellent — high-yield deal; verify assumptions carefully

📚 Real Estate Basics — Complete the path

  1. Cap Rate
  2. NOI
  3. Cash-on-Cash Return
  4. Gross Rent Multiplier
  5. 1% Rule
Sources
  1. Investopedia — Cash-on-Cash Return
  2. Investopedia — Cap Rate