The short answer
Cash-on-cash return compares annual pre-tax cash flow with cash invested, under a stated convention. It helps evaluate a financed property's cash performance but does not capture every component of total return.
On this page
Define both amounts
Include down payment, closing costs and initial work in invested cash as appropriate, and state how reserves are treated. Subtract debt service and relevant cash costs when calculating the annual numerator.
Keep periods consistent
Do not divide one unusually strong month annualized by an incomplete investment total. Show actual and forecast results separately and explain major capital spending.
Worked example
If cash invested is $80,000 and annual pre-tax cash flow is $4,800, the ratio is 6%. An unexpected $8,000 project can materially change that year's cash outcome, so show it rather than relying only on the stabilized estimate.
References and next steps
Use these references for the specific topic they cover. Local requirements and individual circumstances may differ.
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