Cash-on-cash return: the return on the money you actually put in
Cash-on-cash return is a year's cash flow divided by the cash you invested. Unlike cap rate, it includes your mortgage, so it shows what your own money earns.
Updated Oct 29, 2026
The formula
Cash-on-cash return = annual cash flow ÷ total cash invested
Annual cash flow is net operating income minus a year of mortgage payments: what's left in your account after every bill and the loan are paid. Total cash invested is everything that came out of your pocket to get the property running: down payment, closing costs, and any repairs or rehab paid in cash.
Because it looks at your cash rather than the property's price, cash-on-cash shows the effect of a loan. Borrowing at a rate below the property's cap rate pushes cash-on-cash up; borrowing at a rate above it pulls cash-on-cash down.
A worked example
You buy a house for $220,000 with 25% down, pay 3% in closing costs and spend $8,000 on paint, flooring and appliances before the first tenant moves in. The loan is $165,000 at 7.0% for 30 years. Rent is $2,000 a month.
| Down payment (25%) | $55,000 |
|---|---|
| Closing costs (3%) | $6,600 |
| Repairs before renting | $8,000 |
| Total cash invested | $69,600 |
| Collected rent ($24,000 less 5% vacancy) | $22,800 |
|---|---|
| Tax, insurance, maintenance, CapEx, management | −$8,364 |
| Net operating income | $14,436 |
| Mortgage payments ($1,098 × 12) | −$13,173 |
| Annual cash flow | $1,263 |
| Cash-on-cash ($1,263 ÷ $69,600) | 1.8% |
The property's cap rate is 6.6% ($14,436 ÷ $220,000), but the cash-on-cash return is only 1.8%, because the loan costs 7%, more than the property earns. This is common when rates are high, and it's exactly what cash-on-cash is good at revealing. With the same house bought at $200,000, or rent of $2,200, the picture changes quickly: run your own numbers in the rental cash flow calculator.
What cash-on-cash leaves out
Cash-on-cash is a first-year, cash-only measure. It ignores:
- Loan paydown. Part of every mortgage payment reduces the balance. In the example, roughly $1,700 of the first year's payments is principal: real wealth, but not cash in hand.
- Appreciation of the property's value.
- Taxes, including the depreciation deduction rental owners can usually take.
- Rent growth in later years.
So a low cash-on-cash return doesn't automatically make a bad investment, and a high one doesn't make a good one. It answers a narrower question: how hard is my cash working right now, and can the property carry itself?
Infinite returns and the BRRRR method
If you get all of your cash back, for example through a cash-out refinance after a rehab, the cash invested drops to zero and cash-on-cash becomes infinite (as long as cash flow is positive). That's the goal of the BRRRR method. Treat it as a sign that you've recycled your capital, not as a literal return: the deal still carries a larger loan and less margin for error.
Common mistakes
- Forgetting closing costs and rehab in the cash invested, which makes the return look higher than it is.
- Using NOI instead of cash flow on top. Cash-on-cash must subtract the mortgage, or it's just a cap rate on a smaller number.
- Skipping reserves. Leaving out vacancy, maintenance and capital expenses can turn a negative cash flow into a positive one on paper.
- Comparing it with a cap rate as if they measure the same thing. One is about the property, the other about your cash and your loan.
Frequently asked questions
- What is a good cash-on-cash return?
- It depends on your alternatives and goals. Many investors set a target, such as beating what the same cash would earn in a savings account or index fund, and accept a lower figure in markets where they expect strong appreciation. Compare deals against your own target rather than a universal number.
- Is cash-on-cash return the same as ROI?
- It's one kind of ROI. Cash-on-cash counts only the cash flow in one year. A total-return ROI would also count loan paydown, appreciation and tax effects.
- Is cash-on-cash calculated before or after taxes?
- Usually before income taxes, which depend on each owner's situation. The YieldBadger calculators show the pre-tax figure.
- Can cash-on-cash return be negative?
- Yes. If the mortgage payment is larger than NOI, cash flow is negative and so is the return: you're adding money each month to keep the property.
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For education only. Not financial, tax or legal advice; talk to a qualified professional about your situation.