Cash-on-cash return is a rental property's yearly pre-tax cash flow divided by the total cash you put into it: cash-on-cash return = annual cash flow ÷ cash invested. Cash flow is what is left after every operating expense and the loan payments; cash invested is the down payment, the closing costs and whatever you spent to get the property rented. $6,000 of cash flow on $100,000 invested is a 6% cash-on-cash return.
It is the measure that answers the question most investors actually have: what is my money earning, once the bank is paid?
How do you calculate cash-on-cash return?
- Work out net operating income (NOI): a year of rent or bookings, minus vacancy, minus every operating expense, including property taxes, insurance and HOA dues. Net operating income has the full list.
- Subtract a year of loan payments. Use principal and interest only here, because taxes, insurance and dues are already inside NOI. Subtracting the full PITIA payment from NOI counts them twice, the most common error in this calculation.
- Add up the cash invested: the down payment, closing costs, any repairs or renovation before the first tenant or guest, and furnishing for a short-term rental.
- Divide step 2 by step 3 and multiply by 100.
Cash-on-cash return on the sample house
The example deal used across these guides is a $400,000 single-family house bought with 25% down at an example 7.5% rate over 30 years, set out in full in how to analyze a rental property. The figures are assumptions for illustration.
| Long-term rental | Short-term rental | |
|---|---|---|
| Net operating income | $20,664.00 | $27,672.00 |
| Loan payments, principal and interest | ($25,171.68) | ($25,171.68) |
| Cash flow | ($4,507.68) | $2,500.32 |
| Down payment | $100,000 | $100,000 |
| Closing costs | $12,000 | $12,000 |
| Furnishing and setup | None | $20,000 |
| Cash invested | $112,000 | $132,000 |
| Cash-on-cash return | (4.02%) | 1.89% |
Long-term: a loss of $4,507.68 on $112,000 invested is minus 4.02%. Short-term: $2,500.32 on $132,000 is 1.89%. The second is positive, but your money would earn more sitting in a Treasury bond.
Why does borrowing sometimes lower the return?
Leverage works when the property earns more on its price than the loan costs on its balance. The property's side is the cap rate: 5.17% for the long-term version of the sample house and 6.92% for the short-term one. The loan's side is a year of payments over the loan amount: $25,171.68 ÷ $300,000 = 8.39% at the example rate. The loan costs more than the house earns, so every borrowed dollar pulls the return down.
The same long-term rental, financed four ways:
| Financing | Cash flow a year | Cash invested | Cash-on-cash |
|---|---|---|---|
| All cash | $20,664.00 | $412,000 | 5.02% |
| 40% down, example 7.5% | $526.68 | $172,000 | 0.31% |
| 25% down, example 7.5% (the base case) | ($4,507.68) | $112,000 | (4.02%) |
| 25% down, interest-only at an example 7.5% | ($1,836.00) | $112,000 | (1.64%) |
Bought for cash, the house returns 5.02%; financed, it returns less however you structure the loan. Interest-only lowers the payment by $222.64 a month, because no principal is paid down, but the 7.5% interest cost is still above the 5.17% cap rate. The short-term version behaves the same way: 6.41% all cash on $432,000, 1.89% with the base-case loan, 3.92% interest-only.
Positive leverage returns when cap rates rise (lower prices or higher rents) or loan costs fall. DSCR loan rates covers what moves the rate side.
What is a good cash-on-cash return?
There is no single good number, but there are three honest comparisons.
Against a safe alternative. The 10-year Treasury yielded 4.91% on November 2, 2026, with no tenants, no repairs and no work. A rental's cash return has to beat that by enough to pay you for the work, the risk and the money you cannot pull out quickly.
Against what investors target. On investor forums, stated targets for long-term rentals cluster around 6% to 10%, with some insisting on 10% or more. Investors in expensive, fast-growing markets often accept much less, even nothing, because they are buying for appreciation.
| Strategy | Targets investors commonly report | Why it differs |
|---|---|---|
| Long-term rental, steady market | About 6% to 10% | The cash yield competes with bonds and dividends |
| Long-term rental, appreciation market | About 0% to 5% | The expected payoff is growth, not income |
| Short-term rental | About 10% or more | More work, regulation risk and swings in revenue |
| Renovate and refinance (BRRRR) | Higher, or most of the cash recovered | You carry construction and refinance risk |
Against the work it takes. Run the sample short-term rental yourself instead of paying a manager and the return jumps from 1.89% to 11.11%. That is not a better property; it is the manager's $12,168 fee paid to you for doing the job.
Cash-on-cash vs cap rate, ROI and IRR
| Measure | Formula | Counts the loan? | Counts appreciation? | Period |
|---|---|---|---|---|
| Cap rate | NOI ÷ price | No | No | One year |
| Cash-on-cash return | Cash flow ÷ cash invested | Yes | No | One year |
| ROI, or total return | Everything you gained ÷ cash invested | Yes | If you include it | Any period |
| IRR | The yearly rate that equates every cash flow, including the sale, to what you invested | Yes | Yes, through the sale price | The whole hold |
ROI adds what cash-on-cash leaves out. In the sample house's first year, the payments also pay down $2,765.44 of the loan. Long-term: minus $4,507.68 of cash flow plus $2,765.44 of paydown is a loss of $1,742.24, minus 1.56% of $112,000. Short-term: $2,500.32 plus $2,765.44 is $5,265.76, or 3.99% of $132,000.
Add appreciation and the picture changes fast. If the house rose 3% in value, an assumption for illustration and not a forecast, that is $12,000 more on paper, and the first-year ROI becomes 9.16% long-term and 13.08% short-term. That swing is why ROI figures need reading carefully: appreciation is the least certain number in them, it is not cash until you sell, and selling costs come out of it.
IRR goes furthest. It weighs each year's cash flow and the eventual sale by when they arrive, so you can compare a five-year hold with a ten-year one, or a rental with a flip. It also needs the most guesses: rent growth, expense growth, the sale price and the year you sell.
How cash-on-cash return changes over time
The first year is a snapshot. A fixed-rate loan payment stays the same for 30 years, while rent, taxes and insurance move, so the return drifts. On the long-term version of the sample house, each extra $100 a month of rent adds $1,200 a year, minus $60 of vacancy, $91.20 of management and $120 of repair and capex reserves: $928.80 more cash flow, or 0.83 points of cash-on-cash return on $112,000. Expenses work the same way in reverse: a $600 rise in the insurance premium takes 0.54 points off. Rerun the return each year with real figures, and before you renew a lease or reshop a policy.
What counts as cash invested?
- Count: the down payment; closing costs (lender fees, appraisal, title, recording, prepaid items); repairs and updates before renting; furnishing and setup for a short-term rental; the first lease-up costs.
- Leave out: reserves you keep in your own account, which are still your money, even if the lender requires them.
- Recalculate after a refinance. If a cash-out refinance returns part of what you put in, your cash invested falls and the return on the cash still in the deal rises. The BRRRR method is built on that, and the investment property down payment sets the starting figure.
GoDoor's deal calculator works out cash flow, cash invested and cash-on-cash return together, so you can change the down payment or the rate and watch all three move.
Mistakes that inflate cash-on-cash return
- Subtracting taxes and insurance twice, once in NOI and again as part of PITIA.
- Leaving closing costs, repairs or furnishing out of the cash invested.
- Using rent with no vacancy allowance and no capex reserve.
- Counting principal paydown as cash flow. It is real, but it is equity, not money in your account.
- Treating the first year as every year. The loan payment is fixed while rent, taxes and insurance move.
Frequently asked questions
Is cash-on-cash return the same as ROI?
No. Cash-on-cash return counts only the cash the property paid you in a year, after the loan, divided by what you invested. ROI is broader and can add principal paydown, appreciation and tax effects. On the sample house, the long-term version's first-year cash-on-cash is minus 4.02%, while its ROI including paydown is minus 1.56%, and higher again if you assume the value rose.
Can cash-on-cash return be negative?
Yes. It is negative whenever the loan payments are larger than the net operating income, so you add money every month to keep the property. Some investors accept that in markets where they expect strong appreciation, but it is a cost you pay until you sell or the rent catches up, and it needs reserves to cover it.
Does cash-on-cash return include appreciation or principal paydown?
No. It measures only the cash that reached your account in the year. Principal paydown builds equity and appreciation raises value, but neither is cash until you sell or refinance. Total return, ROI and IRR include them. Keeping cash-on-cash narrow is useful, because it shows whether the property pays its own way today.
Is cash-on-cash return before or after taxes?
It is normally a pre-tax figure. Income taxes depend on your whole situation, including depreciation, other income and losses, so they are left out to compare properties on the same footing. Your after-tax return on a rental is often better than its pre-tax cash flow suggests, because depreciation can shelter some of it. Confirm the details with a CPA.
What is the difference between cash-on-cash return and IRR?
Cash-on-cash is one year of cash flow over the cash invested, a snapshot. IRR is the yearly rate that accounts for every cash flow over the whole hold, including the sale and when each dollar arrives. Cash-on-cash tells you whether the property pays now; IRR tells you how the whole investment is likely to compare, if its assumptions hold.
Sources
General education, not financial, tax or legal advice. Figures are examples: rates, rules and programs change, and every lender sets its own. Last checked November 4, 2026.