ANALYSIS

What Is a Good Cash on Cash Return on Rental Property?

Updated March 2026

The Formula

Cash on cash = annual cash flow divided by total cash invested, times 100. If you invested \$40K (down payment + closing + rehab) and net \$3,600/year after all expenses including mortgage, your cash-on-cash return is 9%. This is the truest measure of what your actual money is earning — unlike cap rate, it accounts for leverage.

Realistic Ranges

8-12% is the sweet spot for most buy-and-hold investors in cash-flow markets. Above 12% exists but usually comes with higher risk (rougher neighborhoods, older properties, more management headaches). 4-8% is common in balanced markets like Indianapolis and Columbus where you're also getting appreciation. Below 4% is essentially a savings account with landlord responsibilities — you're betting entirely on appreciation.

Why Your Number Might Be Wrong

Most cash-on-cash calculations I see online exclude vacancy, maintenance reserves, and capex. They take gross rent, subtract mortgage, and call the difference 'cash flow.' That's not cash flow — that's gross margin before half your real expenses. Run the honest number: gross rent minus vacancy minus ALL operating expenses minus mortgage. If that number divided by your cash invested is still 8%+, you've got a deal.

Cash on Cash vs. Total Return

Cash on cash only measures income. Total return includes mortgage payoff (\$3,000-5,000/year of someone else paying down your loan), appreciation (0-5% annually depending on market), and tax benefits from depreciation. A property with 5% cash-on-cash might have 15-20% total return when everything's included. Cash on cash tells you about monthly income; total return tells you about wealth building.