Cash-on-Cash Return

Cash-on-cash return measures how hard your own cash is working, after the mortgage is taken into account. The numerator is annual cash flow: rental income minus operating expenses and minus the loan payments. The denominator is the total cash you actually invested, typically the down payment plus closing costs and any upfront repairs.

Because it includes leverage, cash-on-cash can be much higher or lower than the cap rate on the same property. A loan that costs less than the property’s unleveraged return amplifies your cash-on-cash; an expensive loan drags it down. It is a single-year, pre-tax snapshot, so it does not capture appreciation, principal paydown, or tax effects, which is why investors pair it with other measures of total return.