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Cash on Cash Return:–
Understanding Cash on Cash Return
In real estate investing, Cash on Cash Return (CoC) is one of the most important metrics used to evaluate the profitability of an income-producing property. Unlike purely yield-based metrics like Cap Rate, the Cash on Cash Return measures the annual return the investor made on the property in relation to the amount of mortgage paid during the same year.
Essentially, it answers the question: "For every dollar of actual cash I put into this deal, how much cash am I getting back this year?"
How the Calculation Works
The formula for Cash on Cash Return is relatively straightforward:
To use this calculator effectively, you need to understand the components:
Total Cash Invested: This includes your Down Payment, Closing Costs, and any immediate Repair/Rehab costs required to get the property rentable.
Annual Cash Flow: This is your Net Operating Income (NOI) minus your Debt Service (Mortgage payments). It represents the profit you pocket after all expenses and loans are paid.
What is a "Good" Cash on Cash Return?
While target returns vary by investor strategy and market conditions, here are general benchmarks for rental properties:
8-12%: Generally considered a solid return in most stable real estate markets.
Above 12%: Excellent return, often found in lower-cost markets or value-add deals (fixer-uppers).
Below 5%: Often considered low for a pure cash-flow play, though investors might accept this in high-appreciation markets (like NYC or SF) where the long-term equity gain is the primary goal.
Why Use This Calculator?
Real estate investors use this tool to quickly screen properties. If a property lists for $300,000, simply looking at the rent ($2,500) isn't enough. You must factor in the leverage (mortgage) and the upfront cash requirement to see the true efficiency of your capital. A property might have positive cash flow but a low CoC return if it requires a huge down payment, meaning your money might work harder elsewhere.