What is your cash actually earning?

What cash-on-cash return measures

Cash-on-cash is the levered yield on your actual money: one year of pre-tax cash flow, after the mortgage, divided by the cash it took to get into the deal. Where the cap rate deliberately ignores financing so two buyers can compare the same building, cash-on-cash is personal — it changes with your down payment, your rate and your closing costs, because it is measuring your deal, not the property in the abstract. That makes it the number to weigh against the alternatives for the same cash: a 7.4% cash-on-cash on a rental property is directly comparable to what the same $71,000 would earn anywhere else.

How the number is computed

Annual pre-tax cash flow ÷ total cash invested × 100. The numerator is the monthly picture annualized: collected rent, minus operating costs, minus the mortgage payment, times twelve. The denominator is every dollar that left your pocket to make the property yours and rentable — the down payment, the closing costs, and the upfront repairs. Buying with cash, the "down payment" is simply the full price, and with no mortgage in the numerator the ratio converges toward the cap rate. Two habits keep the number honest: count the rehab budget in the denominator even when it was paid after closing, and put a realistic vacancy and repair allowance in the monthly costs rather than quoting the perfect month.

Reading the result

Many buy-and-hold investors underwrite to 6–10% on stabilized rentals, higher when the plan carries construction or lease-up risk. Leverage cuts both ways and the ratio shows it: financing at a rate below the property's cap rate pushes cash-on-cash above the cap rate (positive leverage); financing above it drags the return under what a cash buyer would earn, and the calculator will show that plainly. A negative result means the property costs you money every month at these numbers — worth knowing before closing rather than after. And remember what the ratio leaves out: principal paydown, appreciation and depreciation's tax shelter are all real returns that arrive outside the monthly cash flow.

Common mistakes

The frequent ones all inflate the answer. Leaving closing costs and rehab out of the denominator overstates the return on exactly the deals that needed the most cash. Quoting gross scheduled rent — no vacancy, no repairs, no management — turns an average deal into a spectacular one on paper; if you self-manage, price the management anyway, because your time is not free and a buyer will underwrite it at 8–10% of rent. Comparing your levered return to someone's unlevered cap rate misreads both numbers. And judging a property by cash-on-cash alone hides the deals that win on equity: a modest 5% cash yield with strong amortization and rent growth can out-earn a 9% yield in a flat market.

Cash-on-cash is one deal at a time; a lender will want the whole book. The free Schedule of Real Estate Owned generator lays out every property — value, debt, income, cash flow — in the format underwriters expect, the same way this page lays out one.