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

8–12% is a common target for value-add multifamily. Higher risk assets may target 15%+. Trophy assets accept 4–7%.

Does cash-on-cash include appreciation?

No. It measures cash yield only. Total return adds appreciation and principal paydown.

Is cash-on-cash the same as ROI?

No. ROI is total return over the hold. Cash-on-cash is per-year cash yield.

Should cash-on-cash be pre-tax or after-tax?

Pre-tax is standard for comparison. After-tax is more useful for personal decision-making.

Cash-on-Cash Return Calculator

Cash-on-cash return is what you actually feel in your pocket. Where cap rate assumes an all-cash purchase, cash-on-cash measures the levered return on the equity you wrote a check for. It's the yield metric that small and mid-size investors use for underwriting because it maps directly to distribution potential.

Enter annual pre-tax cash flow and total cash invested to compute cash-on-cash return — the levered yield investors actually experience.

How leverage amplifies returns

A 6% cap rate deal at 70% leverage with a 5% interest rate can deliver 9–11% cash-on-cash — if income holds and interest stays fixed. Leverage magnifies both wins and losses. A small NOI dip can crash cash-on-cash quickly.

What to include in cash invested

Down payment is the big number. Add closing costs (2–4%), initial rehab or repositioning capex, working capital reserves (3–6 months operating expenses), and any lender-required reserves. Do not include prepaid rent or security deposits.

First-year vs. stabilized yield

First-year cash-on-cash may be low or negative on value-add deals while you complete renovations and re-tenant units. Stabilized cash-on-cash (year 2–3) is often the number investors underwrite to. Show both.

Tax-adjusted returns

Cash-on-cash is pre-tax. Depreciation and interest deductions can substantially raise after-tax yield, particularly for cost-segregation-eligible properties. Ask your CPA before comparing pre-tax cash-on-cash across investment types.

Cash-on-cash by strategy

Different strategies produce different cash-on-cash profiles. Long-term buy-and-hold on stabilized product typically targets 6–9% cash-on-cash out of the gate, growing 1–3% per year as rents rise and debt amortizes. Value-add multifamily targets 3–5% year-1 cash-on-cash rising to 10–14% by year 3 after renovation and lease-up. Short-term rentals in strong tourism markets can produce 12–20% cash-on-cash but with much higher operational load and platform-risk exposure. Development is often negative cash-on-cash for 12–36 months, with all return concentrated at stabilization or sale — cash-on-cash isn't the right metric for that phase; IRR or equity multiple is.

Cash-on-cash and interest-rate cycles

Levered cash-on-cash is extremely sensitive to interest rates because debt service is the largest expense line for most leveraged deals. A 100 bps interest-rate move can swing cash-on-cash by 300–500 bps on a 70% LTV deal. This is why the same property acquired in 2021 at 3.5% financing can produce 9% cash-on-cash while the same property at 2024's 7% financing produces 2–3%. When you underwrite, stress-test cash-on-cash against a 150 bps rate move up on refinance, and make sure the deal still clears your minimum threshold with cushion.

Worked Example

Example: $2M property, 75% LTV loan at 6.5%, 30-year amortization. Down payment + closing + reserves = $560,000 cash in. NOI $120,000. Annual debt service ≈ $114,000. Cash flow = $6,000. Cash-on-cash = 1.07% — anemic. If interest rates were 5% instead, cash flow ≈ $23,000 and cash-on-cash = 4.1%.

Common Mistakes

• Forgetting closing costs and reserves in cash invested. • Using stabilized NOI when the property isn't stabilized yet. • Ignoring interest-rate sensitivity in year 1 underwriting. • Comparing levered returns across deals with different LTVs without adjusting. • Excluding capex reserves and treating routine roof or HVAC replacements as one-off surprises. • Assuming today's cash-on-cash holds through a refinance at higher rates.

How It Works

Step 1 — Cash-on-Cash = (Annual Pre-Tax Cash Flow ÷ Total Cash Invested) × 100.
Step 2 — Cash Flow = NOI − Debt Service.
Step 3 — Total Cash Invested = Down Payment + Closing Costs + Reserves + Rehab.

Frequently Asked Questions

What's a good cash-on-cash return?: 8–12% is a common target for value-add multifamily. Higher risk assets may target 15%+. Trophy assets accept 4–7%.
Does cash-on-cash include appreciation?: No. It measures cash yield only. Total return adds appreciation and principal paydown.
Is cash-on-cash the same as ROI?: No. ROI is total return over the hold. Cash-on-cash is per-year cash yield.
Should cash-on-cash be pre-tax or after-tax?: Pre-tax is standard for comparison. After-tax is more useful for personal decision-making.

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