How to calculate cash-on-cash return

Cash-on-cash return measures a year's cash flow against the cash you put into a property. It includes the effect of financing, unlike cap rate.

The formula

Cash-on-cash return = annual cash flow ÷ upfront cash × 100.

In this calculator, cash flow is what remains after vacancy, operating expenses, capital reserves and mortgage principal and interest. Upfront cash includes your down payment, closing costs and initial renovations.

A worked example

For a $150,000 purchase with 25% down:

Down payment: $37,500
Closing costs at 4% of price: $6,000
Initial renovations: $10,000
Total upfront cash: $53,500

At $2,000 monthly rent, the example produces $1,250 monthly NOI. Deduct $200 in capital reserves and a $786.62 mortgage payment (7.5% interest, 30 years) to get $263.38 monthly cash flow.

Using unrounded monthly figures, annual cash flow is $3,160.60. Cash-on-cash return = $3,160.60 ÷ $53,500 × 100 = 5.91%.

Use the cash to close calculator to organize the settlement payment, initial work and money kept in reserve. Its cash budget includes reserves, which are separate from the upfront costs used in the return calculation above.

Keep equity separate

Mortgage principal payments build equity but are not cash you can spend. This example also pays down $1,037.06 of principal in Year 1. The calculator shows that amount separately and also reports a combined cash plus equity return.

If upfront cash is zero, cash-on-cash return is undefined. Cash flow can still be calculated. Purchase-time operating reserves, income taxes, appreciation and sale costs are outside this model; account for any that matter to your decision.

Open the free calculator and try these figures

Illustrative example. Dollar figures are rounded for display; calculations use unrounded amounts.