Cash-on-cash return is your annual pre-tax cash flow divided by the actual cash you put into the deal (down payment, closing costs, and rehab). Many rental investors target 8–12%, and once you drop below about 6% the cash flow usually isn't paying you enough for the risk and hassle.
The formula
Cash-on-cash = annual pre-tax cash flow ÷ total cash invested. If you put $50,000 into a property and it nets $5,000 a year after every expense and the mortgage, that's a 10% cash-on-cash return. It measures the return on the money you actually spent, not the property's full value.
The expenses people forget
True cash flow is rent minus everything: mortgage, taxes, insurance, and also vacancy, repairs, capital expenditures, and property management — even if you self-manage. Skip those reserves and your 12% return quietly becomes 4% the first time the roof or the water heater goes.
Why cash-on-cash beats 'cash flow' alone
A property that nets $300/month sounds fine until you learn it took $120,000 of cash to buy. Cash-on-cash normalizes deals of different sizes so you can compare a small rental to a big one — and against just leaving the money in an index fund.
Run your own numbers
Enter the price, rent, and expenses and the analyzer returns true monthly cash flow and cash-on-cash return, so you know whether the deal actually pays before you make an offer.
Open the free Rental Cash-Flow Analyzer →
Frequently asked questions
What's a good cash-on-cash return?
It depends on your market and risk tolerance, but many investors look for 8–12%. Below roughly 6%, the cash flow often doesn't justify the risk, illiquidity, and work of owning a rental.
Does cash-on-cash include appreciation?
No. It only measures cash flow versus cash invested. Appreciation, loan paydown, and tax benefits are real returns too, but cash-on-cash keeps you honest about whether the property pays you today.
Should I include vacancy and repairs?
Always. Budget for vacancy, repairs, and capital expenditures even in good months. A return calculated without reserves is the number that gets new landlords into trouble.