Cash-on-Cash Return: Measuring Your Actual Investment Performance
Learn how to calculate the real return on your invested capital, accounting for financing.
Cash-on-Cash return measures the annual return on the actual cash you've invested in a property, making it especially useful for leveraged investments.
Formula: Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
Example: - Purchase Price: $300,000 - Down Payment: $60,000 - Closing Costs: $10,000 - Total Cash Invested: $70,000 - Annual Cash Flow (after all expenses and debt service): $8,400 - Cash-on-Cash Return: ($8,400 / $70,000) × 100 = 12%
This metric is valuable because it: - Shows your actual return on invested capital - Accounts for the impact of financing - Helps compare returns across different investment types - Provides insight into cash flow performance
A good cash-on-cash return varies by market and strategy, but many investors target 8-12% or higher. This metric doesn't account for appreciation, tax benefits, or loan paydown - consider these factors in your overall investment analysis.