What Does Cash-on-Cash Return Mean?
Cash-on-cash return measures annual pre-tax cash flow relative to the cash invested in a rental property. A 7% cash-on-cash return means the property is producing annual pre-tax cash flow equal to approximately 7% of the cash invested, based on the assumptions entered. It is not a guaranteed return.
Formula
Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100
Cash-on-Cash Return Example
Using the default values, annual gross income is $36,000. After a 5% vacancy allowance, $12,200 of annual operating expenses, and $13,200 of annual debt service, annual pre-tax cash flow is $8,800. With $110,000 of total cash invested, cash-on-cash return is 8.0%.
How It Works
- Enter monthly rent and other recurring monthly property income.
- Enter annual operating expenses and a vacancy rate, if applicable.
- Enter monthly mortgage or debt service if financing is part of the analysis.
- Enter the cash invested in the property, including down payment, closing costs, initial repairs or renovations, and other upfront cash.
- The calculator estimates annual pre-tax cash flow and divides it by total cash invested.
Why It Is Important
- Cash-on-cash return helps compare how efficiently invested cash is producing annual cash flow.
- The metric reflects financing because debt service changes annual pre-tax cash flow and down payment size changes cash invested.
- It should be reviewed with NOI, cash flow, cap rate, ROI, vacancy, property condition, and risk rather than treated as a stand-alone investment recommendation.
Important Limits
This calculator is for planning and education. It does not replace accounting, tax, lending, legal, appraisal, or investment advice. Actual performance depends on rent collection, lease terms, repairs, vacancy, financing, taxes, insurance, local market conditions, and the quality of your source records.
Cash-on-Cash Return Formula
The calculator uses annual pre-tax cash flow divided by total cash invested, multiplied by 100.
Annual Gross Income = (Monthly Rent + Other Monthly Income) × 12
Vacancy Loss = Annual Gross Income × Vacancy Rate
Effective Annual Income = Annual Gross Income - Vacancy Loss
NOI = Effective Annual Income - Annual Operating Expenses
Annual Pre-Tax Cash Flow = NOI - Annual Debt Service
Total Cash Invested = Down Payment + Closing Costs + Initial Repairs / Renovations + Other Upfront Cash
Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100
Related Guides
Cash-on-Cash Return GuideCash-on-Cash Return vs Cap Rate
Cash-on-cash return includes financing effects, uses actual cash invested, and uses cash flow after debt service.
Cap rate generally excludes financing, compares NOI with property value or purchase price, and measures property operating yield.
Cash-on-Cash Return vs ROI
Cash-on-cash return focuses on annual cash yield.
ROI may include broader investment gains such as appreciation, loan principal paydown, sale proceeds, and total gain over time.
Related Guides
Rental ROI CalculatorAll-Cash Purchases
If no debt service is entered, the calculator will calculate cash-on-cash return using the property's pre-tax cash flow and the total cash invested.
This may resemble cap rate, but it is not necessarily identical because total cash invested may include closing costs, initial repairs, renovations, and other acquisition cash.
Track the Numbers Behind Rental Property Performance
PropioLedger helps landlords organize income, expenses, cash flow, NOI, and property-level financial performance in one place.