How to Calculate Cash-on-Cash Return on Rental Property

What Is Cash-on-Cash Return?

Cash-on-cash return measures the annual return you earn on the actual cash you invested in a rental property. Unlike cap rate, it accounts for your mortgage — making it the most practical metric for leveraged investors.

If you put $50,000 into a property and it generates $5,000 per year in net cash flow, your cash-on-cash return is 10%. Simple, powerful, and directly comparable to other investment options like the stock market or bonds.

The Formula

Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100

Where:

• Annual Pre-Tax Cash Flow = Total annual rent collected minus all expenses (mortgage, taxes, insurance, repairs, management, vacancies)
• Total Cash Invested = Down payment + closing costs + any renovation costs

The key distinction from other metrics: you're measuring the return on your money, not the property's total value. This makes cash-on-cash return the single best metric for comparing how hard your dollars are working.

A Real Example

Say you bought a rental property for $250,000 with 20% down ($50,000) plus $5,000 in closing costs. Your total cash invested is $55,000.

The property generates $2,000/month in rent. After all expenses (mortgage, taxes, insurance, maintenance), you net $500/month — or $6,000/year.

Cash-on-Cash Return = ($6,000 / $55,000) x 100 = 10.9%

That's a strong return. For comparison, the S&P 500 has historically returned about 10% annually — and you don't get depreciation tax benefits from index funds.

What's a Good Cash-on-Cash Return?

• 8-12%: Solid return for most markets
• 12%+: Excellent — you're outperforming most investments
• Under 5%: Consider whether the property is worth the hassle compared to passive investments

Keep in mind that cash-on-cash return doesn't capture appreciation or mortgage paydown. Your total return is often significantly higher than this number alone.

Track It Automatically

Instead of spreadsheets, LandlordIQ calculates your cash-on-cash return in real time as you record income and expenses. No formulas to maintain, no manual updates — just accurate metrics that update every time you log a transaction. Start tracking for free.