Cash-on-cash return measures how hard the actual cash you invested is working in a real-estate deal. Unlike cap rate, it is calculated after your mortgage payment and only on the money you personally put in — down payment, closing costs and renovations — so it captures the effect of leverage. Enter your annual pre-tax cash flow and total cash invested to see the return instantly.
How it works
The formula divides your annual pre-tax cash flow by the total cash invested, as a percentage:
cash-on-cash = (annual pre-tax cash flow ÷ total cash invested) × 100
Cash flow here is what is left after operating expenses and the mortgage payment. Cash invested is the real money out of your pocket — typically the down payment, closing costs and any rehab — not the financed loan amount. Because the denominator excludes borrowed money, a well-leveraged deal can show a much higher return than the property’s standalone yield.
Example
A rental that produces $8,000 of annual pre-tax cash flow, with $120,000 of cash invested:
(8,000 ÷ 120,000) × 100 = 6.67%
| Cash flow | Cash invested | Cash-on-cash |
|---|---|---|
| $8,000 | $120,000 | 6.67% |
| $12,000 | $120,000 | 10.0% |
| $8,000 | $80,000 | 10.0% |
So either earning more cash flow or investing less of your own cash raises the return. All calculations happen locally in your browser.
Cash-on-cash versus cap rate — when each matters
Both metrics evaluate rental properties, but they answer different questions. Cap rate divides net operating income (NOI) by the full purchase price, ignoring how you financed the deal. It tells you what the property yields as a standalone asset. Cash-on-cash starts after the mortgage payment and only counts what you personally put in — so it measures the return on your actual equity at risk.
The gap between the two numbers is the lever that debt pulls. If you borrow at an interest rate below the cap rate, leverage amplifies your cash-on-cash return above the cap rate. If borrowing costs exceed the cap rate, every dollar of debt actually depresses your return — a dynamic that matters when mortgage rates rise sharply.
Use cap rate to compare properties across different financing structures. Use cash-on-cash when you want to know how hard your down-payment dollars are working.
What goes into each input
Annual pre-tax cash flow is the amount left over after collecting all rents and paying every operating expense — management fees, insurance, property taxes, maintenance reserves, and the full mortgage payment (principal and interest). It does not subtract income tax, since tax treatment varies by investor situation.
Total cash invested is every dollar you wrote a cheque for: the down payment, buyer’s closing costs, legal fees, and any renovation or repair costs before the property was rent-ready. Do not include the loan amount — borrowed money is not your invested capital, and including it would produce a misleading, artificially lower return.
Practical guidance
A result below zero means the property is producing negative cash flow at your current financing. That is not always a dealbreaker — appreciation or tax benefits may still make the investment worthwhile — but a negative cash-on-cash means your tenant is not fully covering your costs today. Many investors accept short-term negative cash flow in high-appreciation markets but track the figure monthly to know how much their own pocket is subsidising the property.