What is Cash-on-Cash Return?
Cash-on-cash return is annual pre-tax cash flow divided by the total cash the investor put into the deal (down payment + closing + rehab + reserves). Unlike cap rate, it accounts for financing. The most useful metric for comparing leveraged investments.
Cash-on-cash return tells the investor what their actual cash is doing. Cap rate ignores leverage; cash-on-cash assumes the specific financing the investor used.
Cash flow for this calculation is rent minus all operating expenses minus PITI (principal, interest, taxes, insurance). It's the money that hits the bank account, not the accounting NOI.
Healthy cash-on-cash for a leveraged BRRRR or rental in 2026 is 8-15% pre-tax. Above 15% in a stable market usually means the investor is underestimating expenses or has under-budgeted reserves. Below 6% means the investor is paying for appreciation rather than cash flow — fine if intentional, dangerous if accidental.
Down payment $50,000, closing $5,000, rehab $25,000 = $80,000 cash in. Annual cash flow after PITI = $9,600. Cash-on-cash = $9,600 / $80,000 = 12%.
Concepts that connect.
Capitalization Rate (cap rate) is a property's annual NOI divided by its purchase price (or current market value), expressed as a percentage. It's an unlevered yield metric — the return an all-cash buyer would earn before financing.
Net Operating Income (NOI) is a rental property's annual gross rental income minus all operating expenses, before debt service and income taxes. NOI is the denominator of cap rate and the numerator of DSCR — it's the most-used number in rental underwriting.
Debt Service Coverage Ratio (DSCR) is the ratio of a property's annual net operating income to its annual debt service. A DSCR of 1.20 means the property generates 20% more income than it needs to cover the loan payment. Most DSCR lenders require 1.10-1.25 to underwrite.
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat — a real-estate investing strategy where an investor buys a distressed property cheap, renovates it, rents it out, refinances at the improved appraisal to recover most or all of the original capital, then repeats the process with the recovered capital.
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