Cash-on-cash return is the single most useful metric for evaluating a rental property's performance. Unlike cap rate, which ignores financing, cash-on-cash tells you exactly how much cash income you are earning relative to the cash you invested. If you are not calculating this number for every property you own or consider buying, you are flying blind.

The Formula

Cash-on-cash return = Annual Pre-Tax Cash Flow / Total Cash Invested x 100

Annual Pre-Tax Cash Flow is your total rental income minus all cash expenses: mortgage payments (principal + interest), property taxes, insurance, maintenance, repairs, vacancy costs, property management, and any other out-of-pocket costs. This is the actual cash that hits your bank account each year from the property.

Total Cash Invested is every dollar you put in to acquire the property: down payment, closing costs, inspection fees, appraisal fees, and any immediate rehab or repair costs before renting. It does not include the mortgage amount — only the cash that came out of your pocket.

A Real Example

You purchase a duplex for $250,000 with 25% down. Your total cash invested: $62,500 (down payment) + $5,000 (closing costs) + $7,500 (initial repairs) = $75,000. Each unit rents for $1,200/month, so annual rental income is $28,800. Your annual expenses: mortgage payments $14,400, property taxes $3,200, insurance $1,400, maintenance/repairs $2,000, vacancy allowance (5%) $1,440. Total annual expenses: $22,440. Annual cash flow: $28,800 - $22,440 = $6,360. Cash-on-cash return: $6,360 / $75,000 = 8.5%.

What Is a Good Cash-on-Cash Return

A cash-on-cash return of 6-10% is generally considered good for residential rental properties. Returns above 10% indicate strong cash flow — common in lower-cost markets or properties purchased below market value. Returns above 15% are excellent but rare for standard residential deals. Returns below 4% suggest the property is underperforming relative to lower-risk alternatives like REITs, index funds, or even high-yield savings accounts. A property with a 2% cash-on-cash return is essentially giving you all the headaches of landlording for savings-account-level returns.

Keep in mind that cash-on-cash return does not capture appreciation, principal paydown (equity building), or tax benefits like depreciation. A property with a 5% cash-on-cash return might have a total return of 12-15% when you factor in these other benefits. But cash-on-cash is the metric that tells you whether the property pays its own way with actual dollars in your account.

How to Improve Your Cash-on-Cash Return

There are only two levers: increase income or reduce expenses. On the income side: raise rents to market rate, reduce vacancy by retaining good tenants, add revenue streams (laundry, parking, storage fees), or convert underused space into rentable units. On the expense side: refinance to a lower rate, shop insurance annually, handle minor maintenance yourself, use property management software instead of a property manager (saving 8-12% of rental income), and negotiate with contractors. Reducing your property management cost from 10% of rent to a $9-19/month software subscription is one of the highest-impact changes a small landlord can make.

When to Walk Away from a Deal

If a property's projected cash-on-cash return is below 4% even with conservative estimates, it is probably not worth the effort unless you are buying purely for appreciation (a strategy that works until it does not). Run your numbers before you make an offer, not after. And always stress-test your assumptions: what happens if vacancy is 10% instead of 5%? What if you need a $5,000 repair in year one? If the deal only works under perfect conditions, it is not a good deal.

Track your rentals in one place — try PropTrack free

Track income and expenses by property to know your real cash-on-cash return — not a guess.

Start Free — No Credit Card

Frequently Asked Questions

What is a good cash-on-cash return for rental property?

A cash-on-cash return of 6-10% is generally considered good for rental properties in most markets. Returns above 10% indicate strong cash flow; returns below 4% suggest the investment is underperforming relative to lower-risk alternatives.