What is a good cash-on-cash return?
Cash-on-cash return tells you what your own money earns each year. It is the number most small investors care about, and the one that financing changes the most.
The formula
Cash-on-cash return = annual pre-tax cash flow ÷ total cash invested × 100
Cash invested is your down payment plus closing costs and upfront repairs. Cash flow is what is left after operating costs, reserves and the mortgage. Unlike cap rate, cash-on-cash includes financing, and unlike total return it ignores appreciation and loan paydown.
Common targets
Many rental investors look for roughly 8% to 12% cash-on-cash, comparing it with what the same money could earn elsewhere. Targets are lower in high-appreciation markets and higher where growth is slow or risk is higher. Any target is a personal choice, not a standard.
What typical homes return today
When we modeled a median-priced home at median rent in 347 large U.S. cities with 25% down at 6.5%, the median cash-on-cash return was -13.2%, and the number of cities with a positive return was 1 of 347. At today's rates, buying an average home at an average price rarely produces strong cash-on-cash returns. See the full city ranking.
How investors raise cash-on-cash return
- Buy below the median or negotiate the price, which lowers both the loan and the cash needed.
- Add value. Renovations that raise rent more than they cost, or a BRRRR refinance that returns part of your cash.
- Cut operating costs. Shop insurance, appeal the tax assessment and consider self-managing.
- Change the financing. A lower rate helps directly; more leverage can raise cash-on-cash but also risk, and a larger down payment lowers it even as it improves cash flow.
Look beyond year one
Cash-on-cash is a first-year snapshot. A property with modest cash-on-cash can still produce a strong total return through rent growth, loan paydown and appreciation. The long-term projection in our rental property calculator shows internal rate of return and equity over up to 30 years.
Calculate cash-on-cash return for a real deal.
Open the calculator →General information for U.S. landlords, not legal, tax or insurance advice. Rules vary by state and city; confirm requirements with a local attorney, licensed agent or tax professional.