How to Calculate Cash-on-Cash Return

Cash-on-cash return is one of the most important metrics for real estate investors. It tells you the annual return on the actual cash you invested, making it essential for comparing different investment opportunities.

What is Cash-on-Cash Return?

Cash-on-cash (CoC) return measures your annual pre-tax cash flow relative to the total cash you invested in a property. Unlike cap rate, which ignores financing, CoC accounts for your mortgage and gives you a true picture of your return on invested capital.

The Formula:

Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100

Breaking Down the Components

Annual Pre-Tax Cash Flow

This is your Net Operating Income (NOI) minus your annual debt service (mortgage payments).

Annual Cash Flow = NOI - Annual Mortgage Payments

Total Cash Invested

This includes everything you paid out of pocket:

Example Calculation

Let's walk through a real example:

Property Details:

Income & Expenses:

Financing:

Cash-on-Cash Return:

$4,800 / $56,000 × 100 = 8.6%

What's a Good Cash-on-Cash Return?

Here's a general framework for evaluating CoC returns:

Important context: These benchmarks vary by:

Common Mistakes to Avoid

1. Forgetting Closing Costs

Always include closing costs (typically 2-5% of purchase price) in your total cash invested. This is real money leaving your pocket.

2. Underestimating Expenses

If you're unsure about expenses, use the 50% rule as a quick estimate—assume 50% of gross rent goes to expenses (excluding mortgage).

3. Ignoring Vacancy

Even in hot rental markets, budget 5-10% for vacancy and tenant turnover. The month between tenants adds up.

4. Using Gross Rent

Always calculate with realistic rent, accounting for vacancy and collection losses.

5. Forgetting Reserves

If your lender requires 6 months of reserves, that's cash you can't use elsewhere—include it.

CoC Return vs Other Metrics

Cash-on-cash is most useful for:

How to Improve Your CoC Return

Try It Yourself

Ready to calculate the cash-on-cash return on a property you're analyzing? Our Multifamily Calculator does all the math for you, including sensitivity analysis to see how changes affect your returns.