What is a good cash-on-cash return?

It depends on the strategy. A stabilized multifamily acquisition might target 5% to 8% from year one, while a value-add deal can show near zero in year one by design because income has not yet been repositioned. Read year one and stabilized cash-on-cash separately rather than as one number.

How is cash-on-cash different from cap rate?

Cap rate is unlevered and measures the property's yield at its purchase price. Cash-on-cash is levered and measures the investor's cash yield on equity. Comparing the two is useful: when cash-on-cash exceeds the cap rate the deal has positive leverage, and when it falls below, the debt is diluting returns.

Does cash-on-cash include the sale proceeds?

No. Cash-on-cash measures a single year of operating cash flow. Sale proceeds are captured by the equity multiple and by IRR, which is why cash-on-cash should never be the only metric used to evaluate a deal.

Cash-on-cash return calculator

A cash-on-cash return calculator divides annual pre-tax cash flow after debt service by total equity invested, measuring the yearly cash yield an investor actually receives on the money they put in.

Net operating income (annual)

Purchase price

Loan amount

Interest rate

Amortization

Closing costs

Loan fees, legal, diligence, escrows

Capital budget at close

Renovation or immediate repairs funded with equity

Cash-on-cash return

6.23%

$119,679 of cash flow on $1,920,000 of equity

Net operating income: $430,000
Less annual debt service: ($310,321)
Cash flow after debt service: $119,679
Down payment: $1,800,000
Plus closing costs: $120,000
Plus capital at close: $0
Total equity invested: $1,920,000
Cash-on-cash return: 6.23%
Going-in cap rate: 7.17%

Negative leverage: the debt is diluting the cash yield. Cash-on-cash is 6.23% against a 7.17% cap rate.

Formula

Cash-on-Cash Return = Annual Cash Flow After Debt Service / Total Equity Invested

How to read the result

Where cap rate describes the property and IRR describes the entire hold, cash-on-cash describes a single year from the investor's seat. It approximates the distribution check, which is why limited partners tend to anchor on it.

It is the most leverage-sensitive of the common return metrics. An interest-only period raises cash-on-cash meaningfully while it lasts and drops it the year amortization begins, so year one cash-on-cash on a bridge deal routinely overstates the stabilized yield.

Common questions

What is a good cash-on-cash return?: It depends on the strategy. A stabilized multifamily acquisition might target 5% to 8% from year one, while a value-add deal can show near zero in year one by design because income has not yet been repositioned. Read year one and stabilized cash-on-cash separately rather than as one number.
How is cash-on-cash different from cap rate?: Cap rate is unlevered and measures the property's yield at its purchase price. Cash-on-cash is levered and measures the investor's cash yield on equity. Comparing the two is useful: when cash-on-cash exceeds the cap rate the deal has positive leverage, and when it falls below, the debt is diluting returns.
Does cash-on-cash include the sale proceeds?: No. Cash-on-cash measures a single year of operating cash flow. Sale proceeds are captured by the equity multiple and by IRR, which is why cash-on-cash should never be the only metric used to evaluate a deal.

Terms used here

Other calculators

This calculator is provided for informational purposes and is not investment, tax, or lending advice. Results depend entirely on the inputs you provide. Lenders re-underwrite net operating income on their own terms, so their figures will differ from these.