Cash-on-Cash Return
Cash-on-cash return is a property's annual pre-tax cash flow divided by the total cash actually invested (down payment, closing costs, and rehab). It answers: what yield am I earning on the money I put in?
Unlike cap rate, cash-on-cash return includes financing: cash flow is what's left after the mortgage payment. That makes it the most direct measure of how leverage affects your return, and the number most buy-and-hold investors target first.
It ignores appreciation, loan paydown, and tax benefits, so treat it as the cash-yield floor of a deal rather than its total return.
Worked example
Purchase: $250,000 with 20% down ($50,000) + $6,000 closing + $9,000 make-ready = $65,000 cash in. Rent $2,200/month; after all expenses and the mortgage, cash flow = $430/month = $5,160/year. Cash-on-cash return = $5,160 ÷ $65,000 ≈ 7.9%.
Put it to work
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