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Cash-on-Cash Return
The annual pre-tax cash flow divided by the total cash invested, measuring the return on actual dollars deployed.
Definition
Cash-on-cash return measures the annual return on the actual cash you invested in a property. If you invested $100,000 (down payment plus closing costs) and the property generates $10,000 in annual after-debt-service cash flow, your cash-on-cash return is 10%. Unlike cap rate, this metric accounts for financing, making it more relevant for leveraged investors. It does not include equity build-up from principal paydown, appreciation, or tax benefits. Most investors target a minimum cash-on-cash return of 8-12% for rental properties. It is one of the most practical metrics for comparing investment opportunities.
How This Relates to DSCR Loans
Your DSCR loan terms directly impact cash-on-cash return. A lower rate or interest-only period increases your annual cash flow relative to cash invested.
Related Terms
Cash Flow
The net money remaining after all income is collected and all expenses and debt payments are made.
ROI (Return on Investment)
The total return earned on an investment expressed as a percentage of the amount invested.
Cap Rate
The ratio of a property's net operating income to its market value, used to estimate return potential.
Equity
The difference between a property's market value and the outstanding mortgage balance.
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