Cash-on-Cash Return
Real Estate / CashflowCash-on-cash return measures the annual pre-tax cashflow a rental property produces as a percentage of the cash you put into the deal. It is the most widely used return metric among buy-and-hold investors because it answers the simplest question: “If I write a check for this amount, what do I get back every year?”
How it works. Cash-on-Cash Return = (Annual Pre-Tax Cashflow ÷ Total Cash Invested) × 100. “Total cash invested” includes the down payment, closing costs, rehab costs, and any out-of-pocket holding costs — every dollar that left your bank account to acquire and stabilize the property. Unlike cap rate, cash-on-cash incorporates leverage: a mortgage amplifies returns (or losses).
| Line item | Amount |
|---|---|
| Purchase price | $200,000 |
| Down payment (20%) | $40,000 |
| Closing costs + minor rehab | $10,000 |
| Total cash invested | $50,000 |
| Monthly rent | $2,000 |
| Less mortgage, taxes, insurance, vacancy, maintenance | $1,400 |
| Monthly cashflow | $600 |
| Annual cashflow | $7,200 |
| Cash-on-cash return | 14.4% ($7,200 ÷ $50,000) |
High leverage inflates cash-on-cash return — a deal with 5% down can show a 20% CoC where the same house with 20% down shows 8%. The numerator is the same, but the denominator shrinks. Always ask why the return looks high before you celebrate.
For finding properties that actually deliver, see find cashflow rentals on Zillow. For the extreme case — where cash-on-cash approaches infinity — see infinite return with BRRRR.