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Cash-on-Cash

Also known asCoCCash-on-Cash Return
Published Apr 20, 2024Updated Mar 18, 2026

What Is Cash-on-Cash?

Cash-on-cash = Annual Cash Flow ÷ Cash Invested. Cash flow is NOI minus debt service. Cash invested = down payment + closing costs + initial capex. A $300,000 property with $75,000 down, $6,000 closing costs, and $4,200/year cash flow: CoC = $4,200 ÷ ($75,000 + $6,000) = 5.2%. Leverage amplifies CoC—all-cash would give NOI ÷ price = cap rate (~6%), but debt service reduces cash flow. With leverage, CoC can be 8–15%+ when NOI exceeds debt service by a healthy margin. Target 8%+ for rental property in most markets.

Cash-on-cash (CoC) is the annual cash flow from an investment property divided by the total cash you invested—down payment, closing costs, and any initial capital improvements.

At a Glance

  • What it is: Annual cash flow ÷ cash invested
  • Why it matters: Measures return on your actual dollars deployed
  • Formula: CoC = Cash Flow ÷ (Down + Closing Costs + Initial Capex)
  • Target: 8%+ for rental property
  • Leverage: Leverage amplifies CoC when NOI > debt service
Formula

Cash-on-Cash = Annual Cash Flow ÷ Cash Invested

How It Works

The math. Cash flow = NOI − Debt Service. NOI = gross rental income − operating expenses. Cash invested = down payment + closing costs + any initial capital improvements or rehab. CoC = Cash Flow ÷ Cash Invested. Express as percentage.

Leverage effect. All-cash: Cash flow = NOI. CoC = NOI ÷ Price = cap rate. With mortgage: debt service reduces cash flow, but you've invested less. A 6% cap rate property with 75% LTV at 6.5% might yield 8% CoC—leverage amplifies return on your cash.

What's good. 8%+ is solid for rental property. 10%+ is strong. Below 5% is thin—vacancy or operating expenses spike could wipe cash flow. DSCR and cash reserves matter alongside CoC.

Real-World Example

Sophia's CoC on her Indianapolis duplex. Purchase $285,000, down $71,250, closing costs $5,700. Cash invested: $76,950. NOI $22,800, debt service $16,200. Cash flow $6,600/year. CoC = $6,600 ÷ $76,950 = 8.6%. Cap rate was 8% (NOI ÷ price). Leverage boosted CoC above cap rate. She targets 8%+; this deal met it.

Pros & Cons

Advantages
  • Measures return on actual cash deployed
  • Leverage amplifies when NOI exceeds debt service
  • Easy to calculate and compare across deals
  • Cash flow is what pays you—CoC reflects that
  • Complements cap rate (value) and DSCR (safety)
Drawbacks
  • Ignores appreciation and principal paydown
  • Pro forma NOI can be optimistic—verify
  • Vacancy and operating expenses variance can reduce actual CoC
  • All-cash CoC = cap rate—no leverage boost

Watch Out

  • Pro forma trap: Verify NOI and operating expenses—sellers often inflate
  • Thin CoC: Below 5% leaves little cushion for vacancy or capex
  • Rate sensitivity: Higher mortgage rates increase debt service and reduce CoC

Ask an Investor

The Takeaway

Cash-on-cash = Annual cash flow ÷ cash invested. It measures return on your actual dollars. Leverage amplifies it when NOI exceeds debt service. Target 8%+ for rental property.

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