How it works
Cash-on-cash return is the annual pre-tax cash flow a property produces divided by the actual cash you deployed to get it — down payment plus closing costs plus any immediate repairs. Unlike cap rate, it respects financing: leverage magnifies it and expensive debt crushes it, which is why investors quote it as the truth about a specific deal rather than about a market. The arithmetic is simple, but the denominator is where back-of-envelope versions cheat. Skipping $12,000 of closing costs beside a $75,000 down payment inflates the answer by more than two percentage points — permanently, because those dollars left the day you signed. This calculator prices that honesty explicitly: it computes the classic year-one CoC, then recomputes it with acquisition costs amortized evenly across your intended hold. On a five-year hold the amortized figure is the fair one; flip the property in year one and the true first-year CoC collapses toward the amortized line instantly. Read the pair together — a deal whose story depends on forgetting its own fees is not a deal.
Formula
Cash invested = down + closing + repairs | CoC yr 1 = (rent − opex − debt service) ÷ cash invested | Amortized CoC = (cash flow − closing ÷ hold years) ÷ cash invested
Tips
- Quote the amortized figure when the hold is five years or less — early sales never dilute fees.
- Count every acquisition dollar: inspections, points, title, immediate make-ready.
- Compare CoC only between deals at similar leverage; 75% LTV flatters anything.
- Pre-tax and pre-appreciation by design — layer those on separately, never inside CoC.
- If amortized CoC lands near your savings-account rate, the headaches are unpaid.
Frequently asked questions
- What is a good cash-on-cash return on a rental property?
- Many investors screen for 8–12% in stable markets and want 15%+ for rougher ones, but context decides. Against a 4% risk-free yield, an unlevered 5% CoC looks thin while a levered 10% carrying real vacancy risk may be fairly priced. Always compare against what the same cash earns passively after tax.
- Do closing costs belong in the cash-on-cash calculation?
- Yes — they are cash out of your pocket at purchase and belong in the denominator. Amortizing them across the hold shows their fair yearly drag: $12,000 of fees spread over five years subtracts roughly two points from a deal returning 9% on $87,000 invested, turning a headline into an underwrite.
- Is cash-on-cash return the same as ROI?
- Not quite. CoC measures one year's cash flow against cash invested; ROI usually means total profit — appreciation, principal paydown and cash flow — against invested cash over the whole hold. A deal can show 8% CoC while its all-in annual ROI runs near 14% once amortization and modest appreciation join.
- Should mortgage principal paydown count in cash-on-cash?
- No. Principal reduction builds equity, not spendable cash, so purists exclude it. Some investors track a total-return variant that adds it back — on a $225,000 loan at 7%, year-one principal is roughly $2,300, worth about 2.6 extra points on $87,000 invested if you choose to count it.
- How does leverage change cash-on-cash return?
- Mechanically: less cash in, same rent, minus debt service. Twenty-five percent down might produce a 9% CoC where an all-cash buyer sees a 6.4% unlevered yield — the spread is borrowed money working. Leverage cuts both ways; identical math amplifies a vacancy year into negative cash flow.