Cash on Cash Return Explained: Formula, Examples & What's a Good CoC

Cash-on-cash return is the single best metric for understanding how hard your actual invested dollars are working. Unlike cap rate, which ignores financing, cash-on-cash return tells you exactly what return you're earning on the money you put in.

What Is Cash-on-Cash Return?

Cash-on-cash (CoC) return measures the annual pre-tax cash flow relative to the total cash you invested. It answers: "For every dollar I put into this deal, how many cents am I getting back each year?"

This is the metric that matters most to investors who use mortgages (which is most of us). It reflects the reality of your investment — including your financing costs.

The Cash-on-Cash Formula

Where:

• Annual Pre-Tax Cash Flow = NOI minus annual mortgage payments (principal + interest)
• Total Cash Invested = Down payment + closing costs + any immediate repairs/renovation

Worked Example

A $400,000 Property with 20% Down

Cash Invested:

• Down payment (20%): $80,000
• Closing costs (3%): $12,000
• Total cash invested: $92,000

Annual Income & Expenses:

• Monthly rent: $3,200
• Annual gross income: $38,400
• Operating expenses (taxes, insurance, maintenance, vacancy, management): -$14,000
• NOI: $24,400
• Annual mortgage payments ($320K loan at 7%, 30yr): -$25,548
• Annual cash flow: -$1,148

Cash-on-Cash Return:

This property is actually losing money each month at these terms. The high interest rate makes the deal negative cash flow — a critical insight that cap rate alone wouldn't reveal.

Now let's see the same property with a lower rate:

• Annual mortgage payments ($320K at 5.5%, 30yr): -$21,804
• Annual cash flow: $24,400 - $21,804 = $2,596
• CoC = $2,596 / $92,000 = 2.8%

Same property, completely different return — that's why cash-on-cash matters.

What's a Good Cash-on-Cash Return?

General benchmarks for rental property investors:

In today's higher interest rate environment, achieving 8%+ CoC is harder than it was in 2020-2021. Many investors now target 5-8% and rely on appreciation and equity buildup for total returns.

Cash-on-Cash vs. Cap Rate

• Cap rate = Property performance metric (ignores financing). Best for comparing properties.
• Cash-on-cash = Investor performance metric (includes financing). Best for evaluating your actual return.

A property with a 6% cap rate could have a 10% CoC return with favorable financing — or a negative CoC return with bad terms. Always calculate both. Read more in our cap rate guide.

How Leverage Affects CoC Return

Leverage (using a mortgage) amplifies your return — in both directions. When the cap rate exceeds your cost of debt, leverage increases your CoC return. When the cost of debt exceeds the cap rate, leverage decreases it.

This is why the same property can be a great deal for one investor (low rate, high down payment) and a bad deal for another (high rate, minimum down).

How to Improve Your CoC Return

1. Negotiate a lower purchase price — reduces your cash invested
2. Increase rental income — renovations, better marketing, in-unit laundry
3. Reduce operating expenses — shop insurance, contest tax assessments
4. Get better financing — lower rate, longer term
5. Put less cash down — increases leverage (but also increases risk)