Key takeaways
- Cash-on-cash = annual pre-tax cash flow ÷ the actual cash you invested.
- Unlike cap rate, it includes your mortgage — the real return on a financed deal.
- Many buy-and-hold investors target 8%–12%; cash-flow markets push higher.
- Leverage cuts both ways: it can lift the return above the cap rate, or turn it negative.
What is cash-on-cash return?
Cash-on-cash return is a property's annual pre-tax cash flow divided by the total cash you put into it, as a percent. Cap rate assumes you pay cash; the moment you use a loan, this is the number that tells you how hard your actual dollars are working.
Worked example
Using the calculator's defaults — a $350,000 property, 25% down at 7% over 30 years, renting for $2,600/month with $700 monthly expenses and $8,000 closing costs:
- Loan $262,500 → monthly principal & interest ≈ $1,746
- Monthly cash flow: $2,600 − $700 − $1,746 ≈ $154
- Annual cash flow: $154 × 12 ≈ $1,843
- Cash invested: $87,500 down + $8,000 closing = $95,500
- Cash-on-cash: $1,843 ÷ $95,500 = 1.93%
That thin 1.93% shows how a high rate squeezes a leveraged deal — drop the price or rate, or raise the rent, and the return moves fast.
What's a good cash-on-cash return?
It depends on strategy and market. As a benchmark:
| Strategy / market | Typical target |
|---|---|
| Appreciation-focused metro | 3% – 6% |
| Balanced buy-and-hold | 6% – 9% |
| Cash-flow market | 8% – 12%+ |
A commonly cited rule of thumb is an 8%–12% cash-on-cash target for rentals; appreciation markets justify less. See Investopedia's cash-on-cash return for the underlying definition.
Frequently asked questions
What is a good cash-on-cash return?
Many landlords target 8%–12%, but it varies — appreciation-focused markets may justify less; cash-flow markets often demand 12%+.
Is cash flow the same as profit?
No. Cash flow here is pre-tax and excludes appreciation, loan paydown, and tax benefits — all of which add to your true total return.
How is it different from cap rate?
Cap rate ignores the loan; cash-on-cash includes it and measures return on your invested cash.
Does a bigger down payment help the return?
Not necessarily. More cash down lowers the mortgage (more cash flow) but also raises the cash invested — the two often offset.
Should I include appreciation?
No — cash-on-cash is cash flow only. For appreciation and loan paydown, use the rental property ROI calculator.
What counts as cash invested?
The out-of-pocket cash to close: down payment plus closing costs (and rehab, if any). It excludes the financed loan amount.