Cash-on-Cash Return
Cash-on-cash return measures annual pre-tax cash flow as a percentage of total cash invested, showing the actual cash yield on your down payment and startup costs.
Cash-on-cash return (CoC) is the most relevant metric for leveraged real estate investors because it measures what you actually receive in cash relative to what you actually put in. Unlike cap rate, CoC accounts for your mortgage payments — so it reflects your real-world financial outcome.
CoC = Annual Cash Flow ÷ Total Cash Invested × 100. Annual cash flow is NOI minus annual debt service (mortgage payments). Total cash invested includes your down payment, closing costs, and any initial startup costs.
STR investors typically target 8–15% cash-on-cash returns. Returns below 5% are generally considered marginal given the management overhead of short-term rentals. Strong markets with optimized operations frequently produce 12–20% CoC returns.
CoC changes with your financing terms — a lower interest rate or larger down payment will affect CoC differently, which is why you must analyze it alongside your specific loan structure rather than as a standalone property metric.
Formula
Cash-on-Cash Return = Annual Cash Flow ÷ Total Cash Invested × 100Calculate It
Quick Calculator
CoC = Annual Cash Flow ÷ Total Cash Invested × 100
Cash-on-Cash Return
10.91%
Worked Example
You invest $110,000 (down payment + closing costs) and receive $12,000/year in annual cash flow. CoC = $12,000 ÷ $110,000 × 100 = 10.9%.
Related Terms
Related Calculators
Frequently Asked Questions
What is a good cash-on-cash return for STR?+
Most experienced STR investors target 8–15% cash-on-cash return. Returns below 5% are marginal for the active management STR requires. Strong markets with optimized operations produce 12–20%. Compare to the risk-free rate (US Treasuries) — if you can't beat 2–3x that return, the additional risk may not be justified.
What is the difference between CoC and cap rate?+
Cap rate ignores financing; cash-on-cash return includes mortgage payments. Cap rate measures property-level income; CoC measures investor-level returns. A property with 8% cap rate and 60% LTV financing might produce 12% CoC due to positive leverage, or lower CoC if rates are very high.
Does CoC include appreciation?+
No. Cash-on-cash return only measures cash income — it does not include equity build-up from mortgage paydown or property appreciation. Total return includes CoC + equity build-up + appreciation. Many STR investors accept lower CoC in high-appreciation markets because total return remains strong.
How does leverage affect CoC?+
Positive leverage (when cap rate exceeds mortgage rate) increases CoC — borrowing at 6% to buy an 8% cap rate property amplifies your equity return. Negative leverage (mortgage rate exceeds cap rate) reduces CoC. At today's rates (6–8%), positive leverage requires solid cap rates of 7%+.
How do I calculate CoC for my property?+
Step 1: Calculate annual NOI (gross revenue - operating expenses). Step 2: Subtract annual mortgage payments to get annual cash flow. Step 3: Add up all cash invested (down payment, closing costs, startup costs, initial reserves). Step 4: Divide annual cash flow by total cash invested. Use our Cash-on-Cash Calculator for instant results.