Cash-on-Cash Return Calculator: Real Estate Yield Simplified
Is that rental property a 'deal' or a 'dud'? While appreciation is nice, cash flow is king. Our Cash-on-Cash Return Calculator helps real estate investors determine the exact percentage of return on every dollar of cash invested. Whether you are a BRRRR enthusiast or a turnkey investor, this tool is your first step in due diligence.
What is Cash-on-Cash Return in Real Estate?
Cash-on-Cash (CoC) Return measures the annual cash flow you receive from an investment property in relation to the total amount of "out-of-pocket" cash you invested.
Unlike the Cap Rate, which assumes you bought the house for 100% cash, the CoC Return accounts for the leverage (mortgage) you use. This makes it a much more accurate reflection of your actual bank account growth.
Formula: CoC Return % = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
CoC vs. Cap Rate vs. ROI: What's the Difference?
Investors often confuse these terms, but they serve different purposes:
| Metric | What it Measures | Includes Debt? |
|---|---|---|
| Cap Rate | Asset profitability regardless of loan | No |
| Cash-on-Cash | Your personal yield on the cash you spent | Yes |
| ROI (Return on Investment) | Total gain (Cash flow + Equity + Appreciation) | Yes |
What is a 'Good' Cash-on-Cash Return?
In 2026, a "good" return depends on your market and strategy:
- 8% to 12%: Generally considered a strong return for long-term rentals in stable markets.
- 15%+: Excellent, often found in high-growth areas or through value-add strategies like the BRRRR method.
- Under 5%: Might be acceptable in "A-Class" neighborhoods where you are banking on high appreciation rather than monthly cash flow.
Remember: CoC Return focuses on cash flow, not appreciation. If you're buying in a rapidly appreciating market, a lower CoC might be acceptable if you expect significant equity growth.
How to Increase Your Cash-on-Cash Return
If your numbers look low, consider these three levers:
- Decrease the Down Payment: Using more leverage (a smaller down payment) can actually increase your CoC return, provided the interest rate isn't too high. However, this increases risk.
- Value-Add Renovations: Increasing the rent through strategic upgrades directly boosts your annual cash flow. A $200/month rent increase adds $2,400/year to your cash flow.
- Self-Management: By managing the property yourself, you can save the 8-10% management fee, instantly increasing your yield. However, this requires time and expertise.
- Reduce Operating Expenses: Shop around for insurance, negotiate HOA fees, and perform preventive maintenance to avoid costly repairs.
- Increase Rent: Research market rates and ensure you're charging fair market rent. Small rent increases compound significantly over time.
Understanding Operating Expenses
Accurate operating expense estimates are crucial for realistic CoC calculations:
- Property Taxes: Usually 1-2% of property value annually, varies by location.
- Insurance: Landlord insurance typically costs $1,000-$2,000/year depending on property value and location.
- HOA Fees: If applicable, can range from $100-$500/month or more.
- Repairs & Maintenance: Budget 5-10% of monthly rent for ongoing repairs and maintenance.
- Property Management: Typically 8-10% of monthly rent if you hire a management company.
- Vacancy: Factor in 5-10% vacancy rate to account for turnover and unoccupied periods.
- Other Expenses: Utilities (if paid by landlord), landscaping, legal fees, accounting, etc.
The Impact of Leverage on CoC Return
Leverage (using a mortgage) can significantly impact your Cash-on-Cash Return:
- Positive Leverage: When your mortgage interest rate is lower than your Cap Rate, leverage increases your CoC Return. This is the ideal scenario.
- Negative Leverage: When your mortgage interest rate is higher than your Cap Rate, leverage decreases your CoC Return. The debt is "eating" your returns.
- Neutral Leverage: When rates are equal, leverage doesn't affect CoC Return, but you still benefit from using less of your own cash.
Example: If your Cap Rate is 8% and your mortgage rate is 6%, you're experiencing positive leverage. Your CoC Return will be higher than your Cap Rate because you're borrowing at a lower rate than the property's return.
Real-World Cash-on-Cash Return Examples
Here are realistic scenarios showing how CoC Return works:
- Scenario 1 - Strong CoC: $200,000 property, $40,000 down, $2,000/month rent, $1,200/month expenses + mortgage = $800/month cash flow. CoC Return: 24% ($9,600 / $40,000).
- Scenario 2 - Moderate CoC: $300,000 property, $60,000 down, $2,500/month rent, $2,000/month expenses + mortgage = $500/month cash flow. CoC Return: 10% ($6,000 / $60,000).
- Scenario 3 - Low CoC: $500,000 property, $100,000 down, $3,000/month rent, $2,800/month expenses + mortgage = $200/month cash flow. CoC Return: 2.4% ($2,400 / $100,000). This might be acceptable if appreciation is strong.
BRRRR Method and Cash-on-Cash Return
The BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) is popular among investors because it can generate very high Cash-on-Cash Returns:
- Buy: Purchase a distressed property below market value.
- Rehab: Add value through renovations, increasing the property's value and rent potential.
- Rent: Lease the property at market rates.
- Refinance: Pull out your initial investment through a cash-out refinance, ideally leaving you with $0 cash invested.
- Repeat: Use the pulled-out cash to buy the next property.
When executed successfully, BRRRR can result in "infinite" CoC Returns because your cash invested approaches zero while you still receive cash flow.
Common Mistakes in CoC Calculations
Avoid these common errors when calculating Cash-on-Cash Return:
- Underestimating Operating Expenses: Many investors forget to include all expenses, leading to inflated CoC Returns. Always include vacancy, repairs, and management fees.
- Ignoring Vacancy: Properties aren't occupied 365 days a year. Factor in 5-10% vacancy to be realistic.
- Forgetting Closing Costs: Closing costs can add 2-5% to your cash investment. Don't forget these when calculating your total cash invested.
- Not Including Rehab Costs: If you need to renovate before renting, include these costs in your cash investment calculation.
- Using Gross Rent Instead of Net: Always subtract operating expenses and debt service from gross rent to get true cash flow.
Frequently Asked Questions
Q:Does CoC Return include taxes?
Our calculator focuses on Pre-Tax Cash Flow. Since every investor has a different tax bracket and depreciation situation, it is standard practice to calculate CoC return before personal income taxes. You can then apply your specific tax situation to determine your after-tax return.
Q:Why is my CoC Return lower than my Cap Rate?
This usually happens if your mortgage interest rate is higher than the property's Cap Rate. This is known as negative leverage. In this scenario, the debt is actually 'eating' your returns. To improve your CoC Return, consider putting more money down, refinancing to a lower rate, or finding a property with a higher Cap Rate.
Q:Should I include vacancy in my calculation?
Absolutely. A property is rarely occupied 365 days a year. We recommend factoring in a 5% to 10% vacancy rate to keep your projections realistic. This accounts for tenant turnover, time between leases, and potential evictions.
Q:What's the difference between Cash-on-Cash Return and ROI?
Cash-on-Cash Return measures only the cash flow return on your invested cash. ROI (Return on Investment) includes cash flow plus equity build-up and appreciation. CoC is more useful for evaluating monthly cash flow, while ROI gives you the total picture including long-term wealth building.
Q:Can Cash-on-Cash Return be negative?
Yes. If your monthly expenses (operating expenses + mortgage) exceed your rental income, you'll have negative cash flow and a negative CoC Return. This is called 'negative cash flow' and means you're losing money each month. Some investors accept this in rapidly appreciating markets, but it's generally not sustainable long-term.
Q:How does down payment affect Cash-on-Cash Return?
Down payment has a complex relationship with CoC Return. A smaller down payment (more leverage) can increase your CoC Return if your mortgage rate is lower than your Cap Rate (positive leverage). However, a smaller down payment also means higher monthly mortgage payments, which can reduce cash flow. The optimal down payment depends on interest rates, Cap Rate, and your risk tolerance.
Q:What is a good Cash-on-Cash Return for 2026?
In 2026, a good CoC Return depends on your market and strategy. Generally, 8-12% is considered strong for stable markets, 15%+ is excellent (often found in value-add strategies), and under 5% might be acceptable in high-appreciation markets. However, these benchmarks vary significantly by location and property type.
Q:Should I include principal payments in my cash flow calculation?
No. Principal payments are not considered cash flow because they're building equity, not providing spendable income. Cash-on-Cash Return focuses on actual cash you can spend, not equity build-up. However, principal payments do contribute to your overall ROI.
Q:How do I calculate Cash-on-Cash Return for a BRRRR property?
For BRRRR properties, calculate your initial cash investment (purchase + rehab), then calculate your cash flow. After refinancing, if you pull out all your initial investment, your CoC Return becomes very high (approaching infinity) because your cash invested approaches zero. However, you still have the property generating cash flow.
Q:Does Cash-on-Cash Return account for appreciation?
No. Cash-on-Cash Return only measures cash flow, not appreciation or equity build-up. This is by design—it tells you how much 'mailbox money' you're making. For a complete picture including appreciation, use ROI or Total Return calculations.