The Cash on Cash (CoC) Return metric is one of the most critical calculations for real estate investors. Unlike Return on Investment (ROI), which might factor in equity paydown and appreciation, CoC focuses strictly on the liquid cash flow relative to the actual cash invested. This calculator helps you determine how hard your specific dollars are working for you in a rental property deal.
How to Calculate Cash on Cash Return
The formula for Cash on Cash Return is straightforward but requires accurate inputs to be meaningful:
Cash on Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
Annual Cash Flow: This is your gross rental income minus all operating expenses and mortgage debt service. It represents the net profit that lands in your pocket every year.
Total Cash Invested: This is the total amount of money you paid out-of-pocket to acquire the property. It typically includes the down payment, closing costs, and immediate repair or rehabilitation costs.
Why is a Specific Calculator Essential?
Generic investment calculators often fail to account for the nuances of real estate. Specifically:
Debt Service: This calculator computes your monthly mortgage payment based on the loan amount (Purchase Price minus Down Payment), interest rate, and term, subtracting it automatically from your cash flow.
Upfront Costs: A true CoC calculation must include closing costs and rehab expenses. Ignoring these artificially inflates your return percentage.
Interpreting Your Results
While "good" returns vary by market and strategy, here is a general guide for rental properties:
8% – 12%: Generally considered a solid return for long-term buy-and-hold investments in stable markets.
12% – 15%: Excellent returns, often found in markets with lower entry prices or properties requiring some value-add work.
Above 15%: Exceptional returns, though they often come with higher risk or require significant management effort (e.g., short-term rentals or major rehab projects).
Example Scenario
Imagine purchasing a property for $200,000. You put $40,000 down and pay $5,000 in closing costs. You spend $10,000 on new floors and paint. Your total cash invested is $55,000.
If the property rents for $2,200/month and your total expenses (mortgage + taxes/insurance/maintenance) are $1,800/month, your monthly cash flow is $400. That's $4,800 per year.