What's a good cash-on-cash return?

Most investors target 8–12% cash-on-cash for a stabilized rental in a decent market. Below 6% is weak for a leveraged single-family — you can get that in an index fund without the headaches. Above 15% usually means either (a) you found a deal, (b) the numbers are too good to be true, or (c) you underestimated expenses. Value-add and BRRRR deals target 15%+ to compensate for rehab risk. In high-appreciation markets, investors accept 3–5% cash-on-cash because most of the return comes from equity growth rather than cash flow.

How is cash-on-cash different from cap rate?

Cap rate is unlevered — NOI divided by purchase price. It tells you how the property performs as a pure asset, regardless of financing. Cash-on-cash is levered — it divides annual cash flow (after mortgage) by actual cash invested (down payment + closing + rehab). Same property, different metrics. At 7% mortgage rates on a 6% cap rate property, leverage actually reduces your return because the mortgage eats more than the NOI on the levered portion. At 4% rates on the same 6% cap rate, leverage amplifies your return dramatically.

Does cash-on-cash include appreciation or tax benefits?

No — it's strictly pre-tax cash-in-hand divided by cash invested. Total return on a rental is typically broken into four parts: cash flow (cash-on-cash), principal paydown (mortgage balance reduction), appreciation (value growth), and tax benefits (depreciation, 1031 eligibility, interest deductions). Full investor return is sometimes called 'total return' or IRR. Cash-on-cash is just the first bucket. A 5% cash-on-cash deal can still be a great investment if the other three buckets deliver.

Why does cash-on-cash drop as my down payment increases?

Because leverage magnifies returns. If a property generates $20,000 NOI and you put 20% down ($80,000), your mortgage payment might be $17,000 leaving $3,000 cash flow = 3.75% cash-on-cash. If you put 50% down ($200,000), your mortgage drops to $10,000 leaving $10,000 cash flow = 5% cash-on-cash. Counter-intuitively, the more cash you put in, the higher the percentage return, but the lower the absolute dollar leverage of your capital. Investors looking to maximize portfolio velocity use minimum down payments. Investors looking for stable income use higher down payments.

Is negative cash-on-cash ever OK?

Rarely, but yes — in appreciation-heavy markets (coastal California, New York City) where cash flow is structurally negative but property values historically rise 6–8%/year. Investors accept $500–$1,000/month of negative cash flow if they believe appreciation will deliver $30–$60k/year of equity gain. The bet is that appreciation and principal paydown more than offset the negative cash flow. The risk is that if appreciation stalls (2008, 2022), you're stuck feeding a cash-negative property for years. Never buy negative cash flow in a market without a strong appreciation thesis.

Cash-on-Cash Return Calculator | Real Estate ROI on Actual Cash Invested

Cash-on-cash return: the investor's yardstick

Cash-on-cash return answers the single most important question for a rental property investor: "For every dollar I put into this deal, how many dollars of cash flow do I get back per year, before taxes?" It's the levered version of return — it accounts for your actual financing and tells you the yield on your actual cash, not on the full property value.

This calculator takes you from purchase price all the way through to annual cash flow and divides by the total cash you actually invested. Change the down payment, the rehab, or the rent, and watch how each lever affects the percentage return on your capital.

The formula, line by line

Cash invested = down payment + closing costs + rehab. Every dollar that left your checking account to acquire and stabilize the property. On a $400,000 purchase at 25% down with 3% closing and $15,000 rehab: $100,000 + $12,000 + $15,000 = $127,000 cash invested.

Annual NOI = gross rent × (1 − vacancy) × (1 − opex%). Net operating income is the property's annual yield before debt service. On $3,200/month rent with 8% vacancy and 45% opex: gross $38,400 − vacancy $3,072 − opex ~$15,900 = NOI $19,400.

Annual cash flow = NOI − annual mortgage (P&I). Your mortgage is the investor's biggest expense. On a $300k loan at 7.25% for 30 years, annual P&I is about $24,550. Cash flow: $19,400 − $24,550 = negative $5,150/year.

Cash-on-cash = cash flow ÷ cash invested. −$5,150 / $127,000 = −4.1%. This property is cash-flow negative at these assumptions, which means rental income doesn't cover the mortgage, let alone expenses and vacancy. You're betting on appreciation.

What "good" looks like in 2026

With mortgage rates at 6.5–7.5% and residential properties trading at 5–6% cap rates, most leveraged single-family rentals produce 0–4% cash-on-cash returns. That's materially lower than the 2015–2021 era where 8–12% was normal. The reason is simple: cap rates have only moved up 1%, but mortgage rates have moved up 3%. That spread crushed leveraged returns.

Deals that produce 8%+ cash-on-cash today typically require one of the following:

Below-market purchase price (foreclosure, estate sale, off-market).
Value-add with rent growth potential (BRRRR or renovation flip to rent).
Small multifamily (2–4 unit) with owner-occupancy reducing effective cash invested.
Higher cap rate markets (Midwest, South secondary cities) with modest appreciation.
Seller financing or assumable loan at below-market rate.

If someone is pitching you a 12% cash-on-cash deal in a Class A market without any of the above, something is wrong with their numbers. Run our vacancy impact calculator to stress-test the vacancy assumption, which is where most pro-forma deals fall apart.

Leverage: the double-edged sword

Leverage amplifies both returns and risk. When property cap rates are higher than mortgage rates (positive leverage), putting less cash down increases your cash-on-cash return. When cap rates are lower than mortgage rates (negative leverage), the opposite happens and higher down payments improve your return.

Example at positive leverage: property yields 8% cap rate, mortgage costs 5%. The 3% spread goes to the investor. More leverage = more spread captured per dollar of equity.

Example at negative leverage (2026 reality): property yields 6% cap rate, mortgage costs 7.25%. The -1.25% spread means every levered dollar reduces return. Less leverage is better. Many investors in 2026 are either paying 50%+ down on rentals or sitting out leveraged deals entirely.

Total return vs. cash-on-cash

Cash-on-cash is only one of four return sources in rental real estate:

Cash flow (cash-on-cash): 0–8% today for leveraged SFR deals.
Principal paydown: Your tenants pay down the mortgage. On a $300k loan at 7.25%, year-one principal paydown is ~$3,000, rising every year. Over 30 years, tenants pay off the entire loan for you.
Appreciation:Historical national average 3.5–4% annually. On a $400k property that's $14,000–$16,000 of equity per year, much of it accruing to the investor thanks to leverage.
Tax benefits: Depreciation shelters ~$9,000/year of income from tax on a $400k residential property. 1031 exchange defers capital gains on sale indefinitely. Mortgage interest deduction (for non-passive investors) or passive loss offsets.

Add these up: a 4% cash-on-cash deal in an appreciating market might deliver 12–15% total annual return. This is why seasoned investors still buy properties with weak cash-on-cash in strong markets. The catch: the non-cash-flow components are all assumptions. Appreciation might be zero. Principal paydown is real but illiquid until sale. Tax benefits depend on income and status.

The 1% rule and its limits

Legacy rule of thumb: a good rental charges monthly rent of at least 1% of purchase price. A $200,000 property should rent for $2,000/month. At this ratio, cash-on-cash typically lands in the 8–12% range with standard financing.

The 1% rule is essentially extinct in most of the US in 2026. Coastal markets trade at 0.3–0.5% rent-to-price. Even most Sun Belt markets are under 0.7%. The Midwest and secondary Southern markets can still hit 1%+ but increasingly rarely. If you're using the 1% rule as a hard filter, you're eliminating 90%+ of current inventory. Use the full cash-on-cash formula instead and calibrate what return threshold you need.

How to increase cash-on-cash

Lower purchase price. The single highest-leverage tactic. A 10% price cut on the same property with same expenses typically moves cash-on-cash by 3–5 percentage points. Negotiate hard. Walk from overpriced deals.

Lower rate.Every 1% lower mortgage rate on a $300k loan is $3,000/year. Shop lenders, consider points if you'll hold long-term, check for assumable loans on the target property.

Increase rents.If current rents are below market, the value-add thesis writes itself. Post-renovation, push rents to market and the cash flow jumps materially. Just don't over-assume the post-value rent — get rent comps from Rentometer or local property managers.

Reduce opex.Self-manage (save 8–10% management fee). Challenge the property tax assessment. Shop insurance every 2 years. These aren't huge line items individually, but they compound.

Buy multifamily for economies of scale. A 4-unit at the same total price as a single-family often cash flows dramatically better because you spread fixed costs (tax, insurance, maintenance) across more income units. Plus you can still get owner-occupant financing if you live in one unit — see our house hacking ROI calculator.

Related tools

Compare to the unlevered version in our cap rate calculator. See full investor pro-forma in our investment property calculator. Model BRRRR cash extraction in our BRRRR strategy calculator. Stress-test vacancy assumptions with our vacancy impact calculator.

Cash-on-cash return calculator