Cash-on-Cash Return Calculator: Measure Your Real Estate Investment Performance

While the cap rate tells you about a property's potential, the Cash-on-Cash (CoC) Return tells you about your potential return. This crucial metric measures the annual cash income you receive relative to the actual cash you invested. It's one of the most accurate ways to gauge the performance of your investment because it accounts for financing. This guide will teach you how to calculate CoC return and why it's essential for any serious real estate investor.

What is Cash-on-Cash Return?

Cash-on-Cash Return, or CoC, measures the annual pre-tax cash flow generated by a property as a percentage of the total cash invested. "Total cash invested" includes your down payment, closing costs, and any immediate repair costs needed to make the property operational. It's a simple, intuitive metric that answers the question: "For every dollar I put into this deal, how many cents am I getting back each year?"

How CoC Differs from Cap Rate

The key difference is leverage. Cap rate is an unlevered metric—it assumes an all-cash purchase. CoC return is a levered metric—it specifically includes the impact of your mortgage.

• Cap Rate: Measures the property's income potential relative to its total value. It's the same for every buyer regardless of financing. Learn about the difference between cap rate and cash-on-cash return.
• Cash-on-Cash Return: Measures your personal return on your actual cash contribution. It is unique to your specific deal structure. For comprehensive analysis, see our CRE analysis guide.

This distinction is vital. Two investors can buy identical properties, but the one who uses more leverage (a smaller down payment) will generally have a higher CoC return, assuming the property is cash-flow positive. This is because their initial cash outlay is smaller.

Step-by-Step CoC Calculation Example

Let's consider an investment property with the following details:

• Purchase Price: $1,000,000
• Net Operating Income (NOI): $65,000
• Down Payment (25%): $250,000
• Closing & Repair Costs: $20,000
• Annual Debt Service (Mortgage Payments): $45,000

Step 1: Calculate Total Cash Invested.

This is the total amount of money you had to bring to the table.

$250,000 (Down Payment) + $20,000 (Costs) = $270,000 (Total Cash Invested)

Step 2: Calculate Annual Pre-Tax Cash Flow.

This is the money left over after paying the mortgage.

$65,000 (NOI) - $45,000 (Debt Service) = $20,000 (Annual Cash Flow)

Step 3: Apply the CoC Return Formula.

$20,000 (Annual Cash Flow) / $270,000 (Total Cash Invested) = 0.074

Step 4: Convert to a Percentage.

0.074 × 100 = 7.4%

Your Cash-on-Cash Return for this investment is 7.4%.

What is a Good Cash-on-Cash Return?

Like cap rates, a "good" CoC return depends on your goals and the market. However, there are some general benchmarks that many investors use:

How Leverage Amplifies CoC Return (and Risk)

Let's revisit our example. What if you were able to secure 80% financing instead of 75%? Your down payment would be $200,000 and your loan would be $800,000, resulting in a higher annual debt service of, say, $48,000.

• New Total Cash Invested: $200,000 + $20,000 = $220,000
• New Annual Cash Flow: $65,000 - $48,000 = $17,000
• New CoC Return: ($17,000 / $220,000) * 100 = 7.73%

Even though your annual cash flow decreased, your CoC return increased because your initial cash investment was significantly lower. This is the power of leverage. However, notice that your cash flow cushion is now smaller, increasing your risk if vacancy rises or expenses jump.