Cash-on-cash return shows how much annual cash flow a rental property pays you compared with the cash you personally put in. Because it includes your loan payments, it fits financed properties better than cap rate.
Updated 25 October 2026.
The formula
Annual cash flow is net operating income minus yearly mortgage payments. Total cash invested is your down payment plus closing costs plus any repairs you paid for up front.
Worked example
- Purchase price: $200,000, with a 20% down payment of $40,000.
- Closing costs $4,000 and repairs $6,000, so cash invested is $50,000.
- Loan: $160,000 at 7% for 30 years, a payment of about $1,064 a month or $12,774 a year.
- NOI: $15,000 a year.
- Cash flow: $15,000 – $12,774 = $2,226.
- Cash-on-cash return: $2,226 / $50,000 = 4.45%.
The cap rate for the same property is $15,000 / $200,000 = 7.5%. The cash-on-cash return is lower because the loan costs more than the property earns at this interest rate, which is why borrowing does not always raise your return.
What to watch for
- Include every upfront cost, not just the down payment.
- Use realistic vacancy and repair allowances in NOI. See how to calculate cap rate.
- It is a one-year snapshot. It ignores appreciation, loan paydown and tax effects.
- Check that the rent covers the loan with DSCR.
How the interest rate changes the result
Keep the same property: $200,000 price, $160,000 loan, $50,000 cash invested and $15,000 NOI. Only the interest rate changes.
| Rate | Yearly loan payment | Cash flow | Cash-on-cash |
|---|---|---|---|
| 7% | $12,774 | $2,226 | 4.45% |
| 5% | $10,307 | $4,693 | 9.39% |
A two-point drop in the rate more than doubles the cash-on-cash return, even though the property earns the same. Always test a higher rate before you rely on a deal that only works with cheap debt.
What counts as cash invested
- Down payment and closing costs.
- Repairs and furnishing paid before the first tenant.
- Any cash you put in later for a major repair you planned at purchase.
Leave out the loan itself. Cash-on-cash measures the return on your own money, so only money you actually paid in goes in the denominator.
Cash-on-cash return in Excel
- Price in B1, down payment rate in B2 (0.2), closing costs in B3, repairs in B4, interest rate in B5, years in B6 and NOI in B7.
- Loan in B8:
=B1*(1-B2). - Yearly payment in B9:
=-PMT(B5/12,B6*12,B8)*12. - Cash flow in B10:
=B7-B9. - Cash invested in B11:
=B1*B2+B3+B4. - Cash-on-cash in B12:
=B10/B11.
Track real rent and costs for each property with the Landlord Rental Property Tracker for Excel, so your NOI comes from actual numbers, not guesses.
How to judge the number
There is no single good cash-on-cash return. Compare it with your cap rate, with the interest rate on your loan, and with what you could earn elsewhere at similar risk. If you plan to renovate and refinance, BRRRR returns are a better fit. For the kinds of rental income and expenses you can count, see IRS Publication 527, Residential Rental Property.
Use the calculator
The cash-on-cash return calculator works it out from your price, loan and costs. If you refinance and repeat, try the BRRRR calculator, and see more on the free tools page.
This is general information, not financial, tax or lending advice. Figures are worked examples. Check your own numbers with a lender or tax professional.
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Frequently asked questions
What is a good cash-on-cash return?
It depends on the market and your goals. Many investors target a return above what they could earn with lower-risk options, but there is no single right number.
Is cash-on-cash return before or after tax?
It is normally calculated before income taxes, using pre-tax cash flow.
How is cash-on-cash different from ROI?
Cash-on-cash looks at one year of cash flow against cash invested. Total ROI can also include appreciation, loan paydown and the sale of the property.