The formula
Cash-on-cash return = Annual pre-tax cash flow ÷ Total cash invested
Total cash invested is your down payment plus closing costs plus any rehab you pay out of pocket. Annual cash flow is rent minus operating expenses minus the mortgage payment, times twelve.
Example
You buy at $250,000 with 25% down ($62,500), pay $7,500 in closing costs and spend $10,000 on repairs: $80,000 invested. The $187,500 loan at 7% over 30 years costs about $1,247 a month. Rent of $2,300 minus $750 of expenses and the mortgage leaves roughly $303 a month, or about $3,630 a year. That's a 4.5% cash-on-cash return.
What's a good cash-on-cash return?
Many investors look for 8–12% on long-term rentals. Lower returns can still make sense if you expect strong appreciation or rent growth, but they leave less room for surprises.
Common questions
Is cash-on-cash the same as ROI?
No. Cash-on-cash only counts cash flow. Total ROI also includes loan paydown, appreciation and tax benefits.
What should monthly expenses include?
Taxes, insurance, maintenance and capex reserves, property management, HOA, utilities you pay and a vacancy allowance. Everything except the mortgage.