Cash-on-Cash Return Calculator

How Is Cash-on-Cash Return Calculated?

Cash-on-cash return is calculated by dividing annual pre-tax cash flow by the total cash invested, then multiplying by 100. For example, if a property generates $5,000 in annual pre-tax cash flow and you invested $100,000 in cash, the cash-on-cash return is 5%.

What Is a Good Cash-on-Cash Return?

There is no single cash-on-cash return that is good for every rental property. The result depends on the location, property type, financing, operating expenses, market conditions, and investment risk. A higher cash-on-cash return can be attractive, but investors should also consider property condition, vacancy, future repairs, and long-term goals.

Cash-on-Cash Return vs. Cap Rate

Cash-on-cash return and cap rate measure different parts of a real estate investment. Cash-on-cash return compares annual pre-tax cash flow with the actual cash invested and includes the effect of mortgage financing. Cap rate compares net operating income (NOI) with the property value and does not include mortgage payments.

What Expenses Should You Include?

Include the normal costs required to operate the rental property, such as property taxes, insurance, maintenance and repairs, property management fees, HOA fees, owner-paid utilities, vacancy losses, and other recurring expenses. Mortgage payments are also important when calculating annual pre-tax cash flow because financing directly affects cash-on-cash return.

How Does Financing Affect Cash-on-Cash Return?

Financing can significantly affect cash-on-cash return. A smaller down payment reduces the amount of cash invested, but it usually increases the loan amount and mortgage payments. A larger down payment requires more cash upfront but can reduce debt payments and improve monthly cash flow. This is why investors should compare both financing costs and expected cash flow.

Cash-on-Cash Return Calculator FAQs

What does a 5% cash-on-cash return mean?

A 5% cash-on-cash return means the property generates annual pre-tax cash flow equal to approximately 5% of the cash you invested. For example, if you invested $100,000 and the property produces $5,000 in annual pre-tax cash flow, the cash-on-cash return is 5%.

Is a higher cash-on-cash return always better?

Not always. A higher cash-on-cash return may indicate stronger cash flow relative to the amount invested, but it can also come with higher risk. Property condition, location, vacancy, financing, expenses, and future repairs should also be considered.

Does mortgage financing affect cash-on-cash return?

Yes. Mortgage financing directly affects cash-on-cash return because loan payments reduce annual cash flow, while the down payment affects the total amount of cash invested.

Can cash-on-cash return be negative?

Yes. Cash-on-cash return can be negative when the property's annual expenses and mortgage payments are greater than the income it generates. This results in negative annual pre-tax cash flow and therefore a negative cash-on-cash return.

Is cash-on-cash return the same as ROI?

No. Cash-on-cash return focuses on annual pre-tax cash flow compared with the actual cash invested. ROI is a broader measure that may also consider property appreciation, changes in property value, and other gains or losses.
For a detailed comparison, read our Cash-on-Cash Return vs ROI guide.

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