Cash-on-Cash Return, Explained
Cash-on-Cash (CoC) return measures the annual cash a rental puts in your pocket relative to the cash you actually put in. Unlike cap rate, it accounts for financing.
Try the Cash-on-Cash return calculatorThe formula
Cash-on-Cash return = annual pre-tax cash flow ÷ total cash invested. Cash flow is rent minus operating expenses minus the mortgage payment; cash invested is your down payment plus closing and any upfront repair costs.
Because the denominator is only the cash you put in — not the full price — leverage can lift Cash-on-Cash return well above the unlevered cap rate when the loan terms are favorable.
Cash-on-Cash vs. cap rate
Cap rate ignores the loan; Cash-on-Cash return is built around it. The same property can show a 6% cap rate and a 10% Cash-on-Cash return once a mortgage is in place — or a negative one if the payment outruns the rent.
Watch the trap: more leverage raises Cash-on-Cash return on paper but also raises risk, since a smaller cushion absorbs vacancy or rate changes less gracefully.
Frequently asked questions
What is a good Cash-on-Cash return?+
Many buy-and-hold investors look for a high-single-digit to low-double-digit Cash-on-Cash (CoC) return, but the right target depends on your market, risk tolerance, and alternatives. Compare it against what the same cash could earn elsewhere.
Does Cash-on-Cash return include appreciation?+
No. It only measures pre-tax cash flow against cash invested. Appreciation, loan paydown, and tax benefits are real returns too, but they sit outside the Cash-on-Cash number.