Metrics & Formulas6 min read

Cash-on-Cash Return: What It Is and How to Calculate It

Cash-on-cash return measures the annual pre-tax cash flow against the actual cash invested. Here's the formula, a worked example, and what a good CoC return looks like.

Cash-on-cash return (CoC) is the most practical profitability measure for leveraged rental property investors. Unlike cap rate, which ignores financing, CoC accounts for your actual mortgage payments and shows you the return on the real cash you put in.

If you want to know how hard your down payment is working for you each year, this is the metric to watch.

The Cash-on-Cash Return Formula

CoC Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100

Where:

Annual pre-tax cash flow = Gross rent − Operating expenses − Annual mortgage payments (P&I)
Total cash invested = Down payment + Closing costs + Upfront repairs/CapEx

Worked Example

You buy a property for $280,000. You put 20% down ($56,000) and have $4,000 in closing costs. Total cash invested = $60,000.

Gross monthly rent$2,200

Annual gross income$26,400

Operating expenses (taxes, ins, mgmt, vacancy, CapEx)−$9,000

Annual mortgage P&I−$12,600

Annual cash flow$4,800

CoC Return = $4,800 ÷ $60,000 = 8.0%

What Is a Good Cash-on-Cash Return?

There is no universal benchmark. It depends on market conditions, property type, and your own opportunity cost. That said, most experienced investors look for:

Below 5%: Likely a value-add or appreciation play, not a cash flow deal.
6–8%: Solid range in most markets.
8–12%+: Strong cash flow deal; verify the numbers carefully.

In competitive coastal markets, even 4–5% CoC can be acceptable if appreciation potential is high. In the Midwest or Sun Belt, investors often target 8–10%+.

When to Use CoC vs. Cap Rate

Use cap rate to compare properties at an all-cash level, regardless of how they'll be financed. Use cash-on-cash return once you know your financing terms to understand the actual yield on your invested cash. If you're screening many deals quickly, start with cap rate; once you shortlist, run CoC with your real mortgage numbers.

Key Takeaways

1CoC return = Annual cash flow ÷ Total cash invested. It measures the return on your down payment.
2Unlike cap rate, CoC includes mortgage payments. It reflects your real, financed return.
3A CoC of 6–8% is considered solid in most markets; 8%+ is strong.
4Always include closing costs and upfront repairs in your 'total cash invested' figure.

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