What cash on cash return measures
Cash on cash return compares the annual cash flow from a property with the cash you actually put into the investment. It is commonly used by rental property investors to compare the performance of deals with different amounts of upfront cash.
Cash on cash return formula
cash on cash return = annual pre tax cash flow ÷ total cash invested × 100
annual cash flow = rental income − operating expenses − debt payments
Example
If you invest $65,000 in cash and the property produces $9,000 of annual cash flow, the cash on cash return is about 13.85%.
Investors may describe this as a way to calculate cash on cash return or as a cash on cash return calculation. Both phrases refer to comparing annual pre tax cash flow with the cash actually invested in the property.
Frequently asked questions
Does cash on cash return include appreciation?
No. This calculation focuses on annual cash flow compared with the cash invested. Appreciation and future sale proceeds are separate parts of an investment analysis.
Should closing costs be included?
Yes, if you paid them from your own cash. Include the upfront cash that was actually required to acquire and prepare the property.
Can I use this for a financed property?
Yes. Include annual mortgage payments in the cash flow calculation.