What is cash-on-cash return?

Cash-on-cash return (CoC) measures the annual cash flow you receive relative to the actual cash you invested in a property. It's calculated as: CoC Return = (Annual Pre-Tax Cash Flow ÷ Total Cash Invested) × 100. For example, if you invested $200,000 and receive $16,000 annual cash flow, your CoC return is 8%.

How do you calculate cash-on-cash return?

To calculate cash-on-cash return: 1) Calculate annual pre-tax cash flow (NOI minus annual debt service). 2) Total your cash investment (down payment, closing costs, initial repairs). 3) Divide cash flow by cash invested. 4) Multiply by 100 for percentage. Formula: (Annual Cash Flow ÷ Total Cash Invested) × 100 = CoC Return %.

What's the difference between cash-on-cash return and cap rate?

Cap rate is an unleveraged metric showing property performance (NOI ÷ Value), assuming all-cash purchase. Cash-on-cash return is leveraged, showing actual return on YOUR cash invested when using financing. With a mortgage, CoC return can be higher or lower than cap rate depending on interest rates and leverage. CoC tells you about your actual investment performance; cap rate tells you about the property's performance.

Can cash-on-cash return be negative?

Yes, cash-on-cash return can be negative if your annual debt service exceeds your NOI, creating negative cash flow. This happens when a property is over-leveraged or underperforming. While negative CoC means you're funding the shortfall from reserves, investors might accept this temporarily during value-add renovations or lease-up periods, expecting positive returns once stabilized.

Cash-on-Cash Return Calculator

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Investment Details

Annual Pre-Tax Cash Flow

Net income after all expenses including debt service.

Total Cash Invested

Total capital including down payment and closing costs.

Cash-on-Cash Return

6.00%

Annual Cash Flow / Total Cash Invested

Your 6.00% CoC return is below typical investor targets.

5-7%Conservative Returns

8-12%Target Range

12-15%Strong Deal

15%+Excellent (Verify Risks)

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💡 Pro Tip: CoC return changes with leverage, while cap rate stays the same. Use both metrics together: CoC shows your actual cash return on your down payment, while cap rate shows the property's raw performance.

Understanding Cash-on-Cash Return

Cash-on-Cash (CoC) Return is a rate of return ratio that calculates the total cash income earned on the total cash invested in a property. It is a key metric for real estate investors because it measures the performance of an investment based on the actual cash they have put into the deal, providing a clear picture of their annual return before taxes.

Formula

CoC Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100

Cash-on-Cash vs. Cap Rate vs. IRR

Cap Rate: Unleveraged yield (NOI / Price). Ignores financing.
Cash-on-Cash: Leveraged yield (Cash Flow / Cash Invested). Accounts for financing.
IRR: Total return over time. Accounts for sale proceeds and appreciation.

Frequently Asked Questions

What's the difference between cap rate and cash-on-cash return?

Cap rate measures a property's unlevered return (as if bought with all cash), ignoring financing. Cash-on-cash (CoC) return measures the return on the actual cash invested, accounting for loan payments. CoC is a more personal metric reflecting your specific deal structure, while cap rate is better for comparing properties on an equal footing.

What's a good cash-on-cash return?

Most commercial real estate investors target a CoC return of 8-12%. Returns below this range may not justify the risk, while returns above it are considered very strong. However, the 'right' number depends heavily on the market, property type, and your personal investment strategy.

Can CoC return be negative?

Yes. A negative CoC return means you are losing money on the property each year after paying all expenses and debt service. This can happen in the early years of a value-add project or if expenses are higher than anticipated. It indicates you must contribute more cash to keep the property running.

How does leverage affect my cash-on-cash return?

Leverage amplifies returns in both directions. With positive leverage (when cap rate > mortgage constant), more debt increases CoC return. With negative leverage (cap rate < mortgage constant), more debt decreases CoC return. In 2024-2025's high-rate environment, many deals experience negative leverage where taking on more debt actually hurts returns.

What is a mortgage constant and why does it matter?

The mortgage constant is your annual debt service divided by your loan amount (expressed as a percentage). It represents the 'cost' of your debt. If your cap rate is 6% and your mortgage constant is 8%, you're paying more for debt than the property earns—this is negative leverage. Always compare your mortgage constant to the cap rate before deciding how much to borrow.

Should I use all cash to maximize cash-on-cash return?

Not necessarily. While 0% leverage means CoC = Cap Rate (no amplification effect), using reasonable leverage (50-70% LTV) can boost returns when rates are favorable. However, in high-rate environments like 2024-2025, many investors prefer lower leverage to avoid negative leverage scenarios and maintain positive cash flow from day one.