Question 1

What is cash-on-cash return in real estate?

Accepted Answer

Cash-on-cash return measures annual pre-tax cash flow as a percentage of total cash invested. Formula: CoC = Annual Cash Flow ÷ Total Cash Invested × 100. Total cash invested includes down payment, closing costs, and initial repairs. It shows how hard your out-of-pocket dollars are working.

Question 2

What is a good cash-on-cash return on a rental property?

Accepted Answer

Most investors target 8–12% cash-on-cash return for a strong rental deal. Returns below 5% may not justify the risk and illiquidity of real estate. Returns above 12% are possible in high-yield markets but often come with more management intensity or higher risk.

Question 3

What is the difference between cash-on-cash return and ROI?

Accepted Answer

Cash-on-cash uses only cash flow in the numerator. ROI includes cash flow plus equity paydown (principal reduction) plus any appreciation. Cash-on-cash is more conservative and predictable; ROI captures total wealth creation but includes the speculative element of appreciation.

Question 4

What is positive leverage in real estate?

Accepted Answer

Positive leverage occurs when your loan interest rate is lower than the property's cap rate — meaning borrowing increases your returns above what you'd earn buying all-cash. Negative leverage is when the interest rate exceeds the cap rate, making debt drag down returns.

Question 5

How does the down payment affect cash-on-cash return?

Accepted Answer

A smaller down payment reduces the cash invested (denominator), which can increase cash-on-cash return — but it also means higher mortgage payments, which reduces cash flow (numerator). The optimal down payment balances maximizing leverage against maintaining positive cash flow.

ROI & Cash-on-Cash Return Calculator

Cash Invested Breakdown

Annual Returns