Question 1

What is cash on cash return?

Accepted Answer

Cash on cash return (CoC) is the ratio of annual pre-tax cash flow to the total cash invested in a property. It measures how much cash you earn relative to the cash you put in. Formula: CoC Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100. For example, if you invest $50,000 and earn $4,000 per year in cash flow, your CoC return is 8%.

Question 2

What is a good cash on cash return for rental property?

Accepted Answer

A cash on cash return of 8-12% is generally considered good for residential rental properties in 2026. Returns below 6% are considered weak in most markets. Returns above 12% are excellent and often found in high-cash-flow markets like the Midwest or Southeast. Many experienced investors use 8% as their minimum CoC threshold before purchasing a rental property.

Question 3

How do you calculate cash on cash return?

Accepted Answer

Cash on Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100. Annual pre-tax cash flow = Gross rental income minus all operating expenses minus annual mortgage payments. Total cash invested = Down payment plus closing costs plus any upfront repair or renovation costs. Example: $6,000 annual cash flow / $60,000 cash invested = 10% CoC return.

Question 4

What is the difference between cash on cash return and cap rate?

Accepted Answer

Cap rate measures a property's return without financing (NOI / Property Value). Cash on cash return includes the effect of mortgage financing and measures return on the actual cash invested. A property can have a 6% cap rate but a 10% cash on cash return if financing is used effectively. Cap rate is property-specific; CoC return reflects your personal financing structure.

Question 5

What is included in total cash invested for CoC calculation?

Accepted Answer

Total cash invested includes: down payment on the property, closing costs (typically 2-5% of purchase price), upfront renovation or repair costs before renting, any initial capital expenditure reserves contributed at purchase, and inspection or appraisal fees paid out of pocket. It does not include loan principal as that is financed, not cash out of pocket.

Question 6

How does leverage affect cash on cash return?

Accepted Answer

Leverage (using a mortgage) typically increases cash on cash return when the cost of borrowing is less than the property's cap rate. If a property has a 7% cap rate and you borrow at 6% interest, leverage increases your CoC return above the cap rate. This is called positive leverage. If borrowing costs exceed the cap rate, leverage reduces CoC return (negative leverage).

Question 7

Is cash on cash return before or after tax?

Accepted Answer

Cash on cash return is calculated using pre-tax cash flow by convention. This makes it easier to compare across investors who have different tax situations. Some investors also calculate after-tax CoC return to understand their true net benefit, but the standard industry definition and most real estate tools use pre-tax cash flow.

Question 8

What is the cash on cash return formula?

Accepted Answer

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

Example: $6,000 annual cash flow / $60,000 total cash invested = 10% CoC Return

Annual Pre-Tax Cash Flow = Gross Rent - Vacancy - Operating Expenses - Mortgage Payments
Total Cash Invested = Down Payment + Closing Costs + Upfront Repairs + Other Out-of-Pocket

Question 9

Can cash on cash return be negative?

Accepted Answer

Yes. A negative cash on cash return means the property generates negative cash flow - expenses and mortgage payments exceed rental income. This is called being cash flow negative. Some investors accept negative CoC returns if they expect strong appreciation, but most buy-and-hold investors require positive cash flow as a baseline requirement.

Question 10

How does vacancy rate affect cash on cash return?

Accepted Answer

Vacancy reduces effective rental income and therefore reduces cash flow and CoC return. A standard vacancy allowance is 5-10% of gross rent. For a property with $2,000/month rent ($24,000/year), a 5% vacancy allowance reduces effective income by $1,200/year. Always include vacancy in CoC calculations to avoid overestimating returns.

Question 11

What is a good cash on cash return for a BRRRR property?

Accepted Answer

For a BRRRR (Buy, Rehab, Rent, Refinance, Repeat) deal, investors target cash on cash returns of 12-20%+ on the remaining cash left in the deal after the refinance. The goal of BRRRR is to pull out most or all of the initial cash investment through refinancing, leaving a very small (or zero) cash basis, which produces infinite or very high CoC returns on the remaining equity.

Question 12

Should I use annual or monthly cash flow in the CoC formula?

Accepted Answer

Always use annual cash flow in the cash on cash return formula. Monthly cash flow multiplied by 12 gives annual cash flow. The result is expressed as an annual percentage return, making it comparable to other annual investment returns like stock market returns or bond yields. Using monthly cash flow without annualizing would give you a monthly rate, not the standard CoC percentage.

CoC Return	Rating	Typical Market
Below 4%	Poor	High-cost coastal markets, overpriced listings
4% - 6%	Fair	Competitive metros, appreciation-driven markets
6% - 8%	Good	Most suburban markets, solid cash flow
8% - 12%	Great	Midwest, Southeast, strong cash flow markets
Above 12%	Excellent	High-yield markets, value-add deals, BRRRR

Cash on Cash Return Calculator

Sources & Methodology

How to Calculate Cash on Cash Return

The Cash on Cash Return Formula

CoC Return Benchmarks (2026)

Cash on Cash vs. Cap Rate

What Counts as Total Cash Invested

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