Cash-on-Cash Return: How to Measure What Your Investment Really Earns
This article is part of our How to Analyze a Rental Property series. If you haven’t seen the full example breakdown, it’s a great place to start.
Cash-on-Cash Return is one of the most important—and most investor-focused—metrics in real estate. Unlike Cap Rate, which ignores financing, or ROI estimates that include future appreciation, CoC Return tells you how hard your cash is working right now.
Whether you’re investing $20,000 or $200,000, you want to know what you’re earning on the actual dollars you’ve put in. That’s what this metric is designed to show.
What Is Cash-on-Cash Return?
Cash-on-Cash Return compares the annual cash flow from a property to the total amount of cash you invested to acquire it. The result is expressed as a percentage:
Cash-on-Cash Return = Annual Cash Flow ÷ Total Cash Invested
In our example property:
- Annual Cash Flow: $7,127
- Cash Invested: $80,200 (down payment + rehab)
- CoC Return = $7,127 ÷ $80,200 = 8.9%
That 8.9% return represents what your money is earning each year based on the real cash you’ve tied up in the deal. It’s the rental property equivalent of asking: “What’s my yield?”
What Counts as “Cash Invested”?
This includes everything you pay out-of-pocket to close the deal and get it rent-ready:
- Down payment
- Closing costs (title, escrow, fees)
- Rehab or renovation costs
- Upfront reserves or furnishings
Be honest about what you’re investing. If you’re spending $12,000 to update a kitchen before listing it, that counts. Don’t cheat the metric by ignoring your own money in the deal.
Why CoC Return Matters
CoC Return gives you a clear view of how well your money is being put to work. It allows you to compare investment properties side-by-side—regardless of price—as long as the investment amounts are known.
It’s also incredibly useful when evaluating financing strategies. Two deals might have the same Cap Rate, but the one with better financing terms will produce a higher CoC Return.
What’s a Good CoC Return?
That depends on your market, goals, and access to capital. In general:
- 5–7%: Acceptable in strong appreciation markets or low-risk areas
- 8–10%: Considered strong in most stable markets
- 10%+: Often found in high-yield areas or value-add opportunities
Just like Cap Rate, context matters. A 7% CoC in a major metro with low risk may be better than a 12% CoC in a town with high vacancy or tenant turnover.
How It Works With Other Metrics
Cash-on-Cash Return pairs well with metrics like:
- Cash Flow — the raw dollars you’re earning each month
- Cap Rate — the unleveraged return on the property price
- Deal Score — combines these and other factors into one score
Use CoC Return to guide how you deploy capital across deals—and to benchmark what’s truly worth pursuing.
Bottom Line
Cash-on-Cash Return is one of the best tools for evaluating the effectiveness of your capital in real estate. It’s simple, powerful, and focused on what matters most to investors: your actual return on cash.
Use it to filter out low-performing opportunities, prioritize smart leverage, and build a portfolio that maximizes your earning potential—deal by deal.
