Calculate your actual annual yield on invested equity — including down payment, closing costs, and initial repairs. The most honest measure of year-one levered performance for any rental property.
What Is Cash-on-Cash Return?
Cash-on-cash (CoC) return measures the annual pre-tax cash flow you receive relative to the total cash you invested — including down payment, closing costs, and any initial repairs. Unlike cap rate, it accounts for your financing. Unlike IRR, it only measures year-one performance.
What Is a Good Cash-on-Cash Return?
- Below 5%: Common in appreciation markets (Bay Area, NYC). You're buying equity growth, not income.
- 5–8%: Acceptable in most markets. Covers carry with modest upside.
- 8–12%: Strong cash flow. Typical target for serious rental investors.
- 12%+: Exceptional. Usually found in secondary/tertiary markets or value-add plays.
Related Tools
Cash-on-Cash Deep Dive: Formula, Worked Example & 2026 Benchmarks
The Formula
Cash-on-Cash = Annual Pre-Tax Cash Flow ÷ Total Cash Invested
Annual pre-tax cash flow = NOI minus annual debt service. Total cash invested = down payment + closing costs + upfront capital expenditures.
Worked Example
Purchase a $1,000,000 property with 30% down ($300,000) plus $25,000 in closing costs — $325,000 total cash in. NOI is $70,000; annual debt service on the $700,000 loan is $53,000. Cash flow = $17,000.
Cash-on-Cash = $17,000 ÷ $325,000 = 5.2%
What's a Good Cash-on-Cash Return in 2026?
With borrowing costs still elevated, stabilized deals commonly pencil at 4–7% cash-on-cash in year one; 8–10%+ generally requires higher-cap markets, favorable debt, or value-add upside. Negative cash-on-cash in year one is common in appreciation-driven coastal markets — acceptable only if that's an explicit part of the strategy, not a surprise.
The Leverage Effect
Financing cuts both ways. When the cap rate exceeds the loan constant, leverage boosts cash-on-cash (positive leverage). When borrowing costs exceed the property's yield — common since rates rose — leverage reduces cash return (negative leverage), and more debt makes the deal worse, not better. Comparing this calculator's result against the same deal at different loan terms shows the effect instantly.
Where It Fits in Underwriting
Cash-on-cash answers "what does my equity earn this year?" — the investor's liquidity question. It pairs with DSCR (the lender's question) and IRR (the full-hold question). Strong deals answer all three.
Data sources for market context: Federal Reserve (FRED), U.S. Census ACS, HUD Fair Market Rents.