Investing tool
Cash-on-cash return measures the annual return on the actual cash you invested, after financing. Enter your annual pre-tax cash flow and total cash invested to get the percentage.
Formula: Cash on cash return = (annual pre-tax cash flow / total cash invested) x 100
Unlike cap rate, cash-on-cash return accounts for financing. It compares the cash you actually take home each year against the cash you actually put in, including the down payment, closing costs, and any upfront rehab.
It is the better metric when you use a mortgage, because leverage can lift cash-on-cash return well above the property cap rate when the loan terms are favorable.
FAQ
Many rental investors target 8% or higher, but acceptable returns depend on the market, risk, and your alternatives.
The total out-of-pocket cash: down payment, closing costs, and any upfront renovation or make-ready spend.
