Cash on Cash Return Calculator
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Total Cash Invested (Down + Closing):
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Monthly Mortgage Payment:
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Annual Cash Flow:
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Cash on Cash Return:
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Understanding Cash on Cash Return in Real Estate
Cash on Cash Return (CoC) is one of the most popular metrics used by real estate investors to evaluate the profitability of an investment property. Unlike ROI (Return on Investment), which may account for loan paydown and appreciation, CoC strictly measures the annual pre-tax cash flow relative to the actual cash invested.
Why is Cash on Cash Return Important?
It provides a realistic view of how your money is performing immediately. For investors relying on financing (leverage), it answers the critical question: "For every dollar I put into this deal, how much cash will I get back this year?"
- Liquidity check: Ensures the property generates enough cash to cover expenses.
- Comparison tool: Allows you to compare real estate returns against stocks, bonds, or other properties.
- Leverage insight: Helps determine if taking a loan is increasing your return rate compared to buying all cash.
How to Calculate Cash on Cash Return
The formula is straightforward but requires accurate inputs for both income and expenses.
Cash on Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100%
Where:
- Annual Cash Flow: (Gross Annual Rent) minus (Operating Expenses + Mortgage Payments).
- Total Cash Invested: Down Payment + Closing Costs + Rehab/Renovation Costs.
Example Calculation
Imagine you are purchasing a rental property with the following numbers:
- Purchase Price: $200,000
- Down Payment (20%): $40,000
- Closing & Rehab Costs: $5,000
- Total Cash Invested: $45,000
If your net annual cash flow (after paying the mortgage, taxes, insurance, and repairs) is $4,500, your calculation would be:
$4,500 / $45,000 = 0.10 or 10% Cash on Cash Return.
Generally, a CoC return between 8% and 12% is considered a solid investment in many markets, though this varies by location and risk profile.