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Cash-on-Cash Return Calculator

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Cash-on-Cash Return
6.00%

Formula: Cash Flow / Cash Invested

Investor Analysis

5-7% Return Stable assets / Bond-like safety.
8-12% Return Standard target for CRE investors.
12-15% Return Strong returns, typical for value-add deals.
15%+ Return High yield, often high risk or off-market.

Cash-on-Cash Return: The Personal Metric

While the **Cap Rate** tells you about the property's performance, **Cash-on-Cash Return** tells you about *your* performance. It measures strictly the cash coming back into your pocket relative to the cash you pulled out of your pocket to buy the asset.

Leverage: The Double-Edged Sword

If your interest rate is lower than the property's cap rate, you have "positive leverage." This will cause your Cash-on-Cash return to be *higher* than the cap rate. Conversely, if interest rates are high (above cap rates), your mortgage payments will eat so much income that your CoC return may fall below the cap rate.

Why CoC is better than ROI for Cash Flow

ROI (Return on Investment) often includes non-cash items like principal paydown and tax benefits. Cash-on-Cash is a "kitchen table" metric—it's the actual dollar amount you can spend today.

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Expert FAQ

What is a "good" cash-on-cash return for commercial real estate?

While "good" is subjective, most institutional investors target 8-12% for stabilized Class B assets. In high-growth gateway markets (Class A), you might see 4-6%, whereas opportunistic or distressed assets in tertiary markets may cross 15%+. Always compare your CoC to the risk-free rate and current inflation.

How does leverage (debt) impact my cash-on-cash return?

Leverage is a double-edged sword. When the property's cap rate is higher than your mortgage interest rate ("positive leverage"), your CoC return is amplified. However, if interest rates rise above the cap rate ("negative leverage"), your debt service will eat into your cash flow, potentially pushing your CoC below what an all-cash purchase would yield.

Is cash-on-cash return the same as ROI or IRR?

No. ROI (Return on Investment) often includes non-cash benefits like principal paydown and tax depreciation. IRR (Internal Rate of Return) accounts for the time value of money and the eventual sale proceeds. CoC is a "snapshot" of your pre-tax cash flow relative only to the actual cash you invested.

Should I include closing costs and reserves in my initial investment?

Yes. A true cash-on-cash calculation must include every dollar out of your pocket. This means the down payment plus closing costs, loan origination fees, immediate capital expenditure (CapEx) requirements, and any initial working capital reserves. Ignoring these will artificially inflate your projected returns.

Can cash-on-cash return be negative?

Absolutely. If your operating expenses and debt service exceed your total rental income, your net cash flow is negative. This means you are "feeding the property" out of pocket each month. While sometimes planned during a heavy renovation/value-add phase, sustained negative CoC is a high-risk scenario that can lead to insolvency.