Cash-on-Cash Return
Annual cash flow relative to actual cash invested.
Formula
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Example
$9k cash flow on $90k down: CoC = 10%
How it works
Cash-on-cash return measures how much annual pre-tax cash an investment property generates compared with the actual cash you put into the deal. It is a return-on-equity style metric: if you invest less cash up front, the same annual cash flow produces a higher percentage return. It works by dividing the yearly cash distributed to you by your cash invested, then converting that ratio to a percentage.
When to use it
Use this formula when comparing income-producing real estate deals, especially rental properties, where you want to know how hard your down payment and closing costs are working for you. It is especially useful for investors evaluating leverage, because it focuses on real cash in and out rather than paper gains like appreciation.
Worked example, step by step
Step 1: Identify annual pre-tax cash flow. ACF = $14,400 Step 2: Identify total cash invested. I_cash = $96,000 Step 3: Divide annual cash flow by cash invested. 14,400 ÷ 96,000 = 0.15 Step 4: Convert to a percentage. CoC = 0.15 × 100 = 15% Final answer: The cash-on-cash return is 15%.
Common mistakes to avoid
- Using property value or purchase price instead of the actual cash invested
- Including tax savings, appreciation, or loan principal paydown in annual cash flow
- Forgetting to subtract expenses, vacancy, and debt service before calculating cash flow
Did You Know?
Leverage boosts cash-on-cash return — using a mortgage means less of your own cash is tied up.
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