Real Estate Investing Glossary

Cash-on-Cash Return

Last reviewed July 15, 2026

Cash-on-cash return is a property’s annual pre-tax cash flow divided by the total cash invested, measuring the yield on your actual money in the deal.

What is cash-on-cash return?

Cash-on-cash return measures what your invested cash actually earns in a year. Unlike cap rate, it accounts for financing: the numerator is cash flow after mortgage payments, and the denominator is the real cash you put in, down payment, closing costs, and any upfront repairs, not the full purchase price.

This makes cash-on-cash the most intuitive metric for leveraged rental investors. If you put $50,000 into a deal and it generates $4,000 of pre-tax cash flow per year, you are earning 8% on your money regardless of what the whole property cost. Positive leverage (borrowing at a rate below the property’s cap rate) pushes cash-on-cash above the cap rate; negative leverage drags it below.

Cash-on-cash ignores appreciation, principal paydown, and tax benefits, so it understates total returns for most leveraged rentals. It is best used to compare the current-income productivity of different deals and to sanity-check whether a property can support its own mortgage.

Formula

Cash-on-cash return = annual pre-tax cash flow ÷ total cash invested

Worked example

You buy a $200,000 rental with 25% down ($50,000) plus $6,000 in closing costs, so $56,000 cash invested. After collecting rent and paying operating expenses and the mortgage, annual cash flow is $4,480. Cash-on-cash return = $4,480 ÷ $56,000 = 8.0%.

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Every Lofty listing publishes its rent, expenses, yield, and price, so you can apply this definition to live deals. Shares start at $50.

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Frequently asked questions

What is a good cash-on-cash return?: Many buy-and-hold investors target 6% to 10% cash-on-cash on stabilized long-term rentals, with higher targets for riskier or more management-intensive properties. In high-appreciation markets investors sometimes accept lower current yields. Treat anything advertised well above 12% skeptically and verify the rent, expense, and vacancy assumptions behind it.
How is cash-on-cash return different from ROI?: Cash-on-cash only counts one year of pre-tax cash flow against your invested cash. Total ROI (or IRR) also includes appreciation, loan principal paydown, and eventual sale proceeds over the full holding period. A property with a modest 5% cash-on-cash return can still deliver a strong total return if the market appreciates and the tenant pays down the loan.

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What is cash-on-cash return?

Frequently asked questions

What is a good cash-on-cash return?

Many buy-and-hold investors target 6% to 10% cash-on-cash on stabilized long-term rentals, with higher targets for riskier or more management-intensive properties. In high-appreciation markets investors sometimes accept lower current yields. Treat anything advertised well above 12% skeptically and verify the rent, expense, and vacancy assumptions behind it.

How is cash-on-cash return different from ROI?

Cash-on-cash only counts one year of pre-tax cash flow against your invested cash. Total ROI (or IRR) also includes appreciation, loan principal paydown, and eventual sale proceeds over the full holding period. A property with a modest 5% cash-on-cash return can still deliver a strong total return if the market appreciates and the tenant pays down the loan.