Calculate the actual return on the cash you invested in a rental property. Cash on Cash (CoC) is the most practical metric for comparing investment performance.
What is Cash on Cash Return?
Cash on cash return (CoC) measures the annual pre-tax cash flow generated by a property as a percentage of the total cash you invested. Unlike cap rate, which looks at the entire property value, CoC tells you what your actual out-of-pocket money is earning. This makes it the most practical metric for comparing how hard your money is working across different investments.
Your cash invested includes everything you put in: down payment, closing costs, rehab costs, and any other out-of-pocket expenses to acquire and prepare the property for rent.
Cash on Cash Return Formula
Cash on Cash = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100
Example: You invest $35,000 (down payment + closing costs) in a rental property. After collecting rent and paying all expenses including the mortgage, you net $3,600 per year in cash flow. Your cash on cash return is ($3,600 / $35,000) x 100 = 10.3%.
What is a Good Cash on Cash Return?
12%+
Excellent
Outstanding return. Your cash is working extremely hard. Common in well-executed BRRRR deals and high-yield markets.
8-12%
Great
Strong return that significantly outperforms stock market averages. The sweet spot for most buy-and-hold investors.
4-8%
Acceptable
Modest cash return. May be acceptable in appreciating markets where equity growth compensates for lower cash flow.
Below 4% cash on cash, a standard index fund may outperform your real estate investment on a pure cash return basis. However, real estate offers additional returns through appreciation, loan paydown, tax benefits, and depreciation that stocks do not provide.
Frequently Asked Questions
What is a good cash on cash return on rental property?
A good cash on cash return is 8-12% for most markets. Above 12% is excellent. Below 4% means your capital may earn better returns elsewhere. The ideal CoC depends on your market, strategy, and whether you are prioritizing cash flow or appreciation.
How is cash on cash different from ROI?
Cash on cash only measures the cash flow return on your cash invested. Total ROI includes appreciation, loan paydown, and tax benefits in addition to cash flow. A property with 6% CoC might have a 15-20% total ROI when you include equity growth and tax savings.
Does cash on cash include mortgage payments?
Yes. Cash on cash factors in your mortgage payment because it measures actual cash flow — the money left in your pocket after all expenses including debt service. This is what makes it different from cap rate, which ignores financing.
What is infinite cash on cash return?
Infinite cash on cash occurs when you recover all your invested capital (typically through a BRRRR refinance or cash-out refi) but still own a cash-flowing asset. If you have $0 of your own money in the deal but still collect cash flow, the return on your invested cash is mathematically infinite.