Question 1

How do you calculate cash-on-cash return?

Accepted Answer

Cash-on-cash return = annual pre-tax cash flow ÷ total cash invested, as a percentage. Annual cash flow is net operating income minus the mortgage payment. Total cash invested is the down payment plus closing costs plus any up-front repairs. Example: $3,600 of annual cash flow on $65,000 of cash in is a 5.5% cash-on-cash return.

Question 2

What is a good cash-on-cash return?

Accepted Answer

Most small residential investors look for 6-10%. Below about 4% you are taking on landlord work and risk for something close to a passive index return. Above 12% is possible but usually comes with a catch — a cheaper market, an older building, heavy renovation, or optimistic expense assumptions. What counts as good also depends on what you could earn elsewhere with the same money at the same risk.

Question 3

What is the difference between cash-on-cash return and cap rate?

Accepted Answer

Cap rate ignores financing and measures the property against its full value, which makes it useful for comparing properties. Cash-on-cash includes your mortgage and measures return against the cash you actually put in, which makes it useful for comparing your deal against other things you could do with that money. A leveraged purchase often has a higher cash-on-cash return than cap rate, and a negative one if the loan is expensive enough.

Question 4

Does cash-on-cash return include appreciation or principal paydown?

Accepted Answer

No. It counts only cash in and cash out during the year, which is exactly why it is useful as a cash-flow check and incomplete as a measure of total return. Principal paydown builds equity you cannot spend yet, and appreciation is unrealized until you sell or refinance. A property can have a mediocre cash-on-cash return and still be a good long-term hold once those are counted.

Question 5

Should closing costs and repairs count as cash invested?

Accepted Answer

Yes. Any money that leaves your pocket to get the property producing income belongs in the denominator: down payment, closing costs, lender fees, inspections, and up-front make-ready repairs. Leaving them out is the most common way this figure gets overstated — the denominator shrinks and the return looks better than it is.

Range	Reading
Negative	The property costs you money monthly. Sometimes deliberate in a high-appreciation market, but it must be funded from somewhere.
0–4%	Thin. You are doing landlord work for something close to a passive return.
6–10%	The range most small residential investors target.
12%+	Check the assumptions. Usually a cheaper market, an older building, or an expense line that is too low.

Cash-on-Cash Return Calculator

Purchase & financing

Operations

What Is Cash-on-Cash Return?

What Counts as a Good Return

Why Leverage Cuts Both Ways

What It Leaves Out

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