Cash on cash return is the metric that tells you what your actual money is earning, and this free calculator gets you the number fast. Enter your annual pre-tax cash flow and the total cash you put into the deal, and you will see your cash on cash return.
Where cap rate ignores your loan, cash on cash is all about your loan. It measures the cash you get back each year against the cash you actually invested, so it is the number that tells you how hard your down payment is working. Here is the tool, then how to read it.
Cash on cash, in one line: it is your annual pre-tax cash flow divided by the total cash you invested, expressed as a percentage.
How it differs from cap rate: cap rate is unleveraged and ignores financing. Cash on cash factors in your loan, so it reflects how leverage changes your real return on the cash you put in.
The Cash on Cash Formula
The formula is cash on cash return = annual pre-tax cash flow ÷ total cash invested. Cash flow is what is left after operating expenses and your debt service. Total cash invested is your down payment plus closing costs plus any money you put into getting the property stabilized.
Here is an example. You buy a property with $250,000 of cash in (down payment plus closing and initial improvements), and after the mortgage it throws off $25,000 a year in cash flow. Your cash on cash return is $25,000 divided by $250,000, or 10%. That is the return on your money, not the property's unleveraged return.
How to Read Your Cash on Cash Return
A higher cash on cash return means your invested dollars are working harder, but chasing a big number with heavy leverage also raises your risk. When your loan constant is higher than your cap rate, leverage can actually drag your cash on cash down, which is called negative leverage. That is why I run this next to the cap rate on every deal.
This is one of the three return metrics I lean on, alongside IRR and equity multiple. Cash on cash tells you about the annual return today, while IRR accounts for timing and your eventual sale. I break all three down in the video below.
Watch: Calculating Commercial Real Estate Investment Returns [Three Methods]
Cash on Cash Return FAQ
How do you calculate cash on cash return?
Divide your annual pre-tax cash flow by the total cash you invested. If you put in $250,000 and the deal produces $25,000 of annual cash flow, your cash on cash return is 10%.
What is a good cash on cash return?
It depends on the deal and the market, but many commercial investors look for something in the high single digits to low double digits on a stabilized property. A value-add deal might start lower and climb as you raise the income.
What is the difference between cash on cash return and cap rate?
Cap rate is unleveraged and measures the property's return as if you paid all cash. Cash on cash factors in your financing and measures the cash flow against the actual cash you invested.
Does cash on cash return include appreciation?
No. Cash on cash only measures annual cash flow against cash invested. It ignores appreciation, loan paydown, and taxes, which is why investors also look at IRR and equity multiple for the full picture.
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Explore CRE CentralFor the full picture on returns, read my guide on how to calculate commercial real estate returns, or browse all the commercial calculators.