Short answer: Divide annual pre-tax cash flow (after the mortgage) by the total cash you invested, including down payment and closing costs.
What it measures
Cash-on-cash return compares the cash flow you receive each year with the cash you actually put in. Unlike cap rate, it includes your mortgage, so it reflects your real deal.
Cash-on-cash = annual cash flow ÷ cash investedCash invested = down payment + closing costs (+ any upfront repairs).
What's a good cash-on-cash return?
It depends on your alternatives and risk. FirstDoor scores 8% or more as strong and under 4% as weak for a first rental, because below that a low-risk investment may pay you similar money without tenants or repairs. These are FirstDoor's beginner thresholds, not an industry standard.
How your down payment changes it
Using the example below, here's how the same property performs with different amounts of cash in:
| 20% down | 11.5% on $46,000 |
| 25% down | 10.8% on $56,000 |
| All cash | 8.8% on $206,000 |
Borrowing can boost the percentage when the property earns more than the loan costs. When rates are high, the opposite can happen, so run it both ways.
What it leaves out
Good to know: Cash-on-cash ignores appreciation, loan paydown and tax effects. It's a cash-flow lens, which is exactly what most first-time landlords need to stay safe.
Worked example
A $200,000 house renting for $2,200/mo, 20% down at 7% for 30 years, $6,000 closing costs.
| Monthly cash flow | $440 |
| Annual cash flow | $5,274 |
| Cash invested | $46,000 |
Frequently asked questions
How do you calculate cash-on-cash return?
Divide annual pre-tax cash flow (after the mortgage) by the total cash you invested, including down payment and closing costs.
Is cash-on-cash the same as ROI?
Not exactly. Cash-on-cash only counts cash flow against cash invested. Broader ROI measures may include appreciation and loan paydown.
What cash-on-cash return should a beginner target?
FirstDoor treats 8% or more as strong and under 4% as weak for a first rental. Your own target depends on risk and your alternatives.
Keep learning
- What is a good cap rate?
- How much cash do you need for your first rental?
- Is the 1% rule still realistic?
- How to analyze a rental property (step by step)
- Rental analysis glossary
Sources
Educational content, not financial advice. Loan programs and requirements change; confirm with a lender.