What Is a Good Cash-on-Cash Return?
The return on the money you actually put in — and the metric most worth setting a personal minimum on.
4–8%
The realistic band for a stabilised, financed rental bought at market.
The calculation
Cash-on-cash = Annual pre-tax cash flow ÷ Total cash invested
Pre-tax, first-year, and levered — it says nothing about principal paydown or appreciation.
Both halves are easy to get wrong. Cash flow must be NOI minus debt service — not rent minus the mortgage. And cash invested is everything you actually put in:
- Down payment
- Closing costs — loan fees, title, transfer taxes, prepaid escrows
- Rehab, make-ready and any day-one capital the property needs to be rentable
- Upfront reserves you are required (or sensible enough) to hold
Leaving closing costs out is the most common version of this error, and it inflates the answer by roughly 10–15% on a typical purchase — not enormous on its own, but it stacks with every other optimistic assumption.
What counts as good
| Cash-on-cash | Reading |
|---|---|
| Below 0% | You are funding the property monthly. Only defensible as a deliberate bet on appreciation or a value-add period with an end date. |
| 0% – 3% | Thin. Common in expensive metros at 2026 rates. You are buying appreciation and principal paydown, and should say so out loud. |
| 4% – 7% | The realistic band for a stabilised, financed rental bought at market today. |
| 8% – 12% | Strong. Usually means a genuine cash-flow market, a below-market purchase, or a value-add already executed. |
| Above 12% | Check your inputs before you celebrate. Most often a missing CapEx, management or vacancy line — occasionally a real distressed or off-market buy. |
Anchor your floor to the alternative
The leverage trap
Cash-on-cash is levered, which makes it easy to manipulate: put less money down, and the denominator falls faster than the numerator — right up until it does not. Whether more debt raises or lowers your cash-on-cash depends on the spread between cap rate and the mortgage constant.
The $240,000 example at different down payments (cap rate 6.25%, rate 6.75%)
- 20% down — cash flow $61/yr on $55,200 invested
- 0.1%
- 25% down — cash flow $995/yr on $67,200 invested
- 1.5%
- 30% down — cash flow $1,930/yr on $79,200 invested
- 2.4%
- 40% down — cash flow $3,797/yr on $103,200 invested
- 3.7%
- All cash — cash flow $15,004/yr on $247,200 invested
- 6.1%
Cash-on-cash rises as leverage falls — the signature of negative leverage.
This is the opposite of the familiar “leverage boosts returns” story, and at 2026 rates it is the common case rather than the exception. Leverage magnifies the spread between the property’s yield and the cost of debt — and when that spread is negative, it magnifies it downward. More on the trade-off in how much down payment to make.
What cash-on-cash leaves out
Three real sources of return are invisible to it: principal paydown (your tenant retiring your loan), appreciation, and tax treatment (depreciation frequently shelters some of the cash flow). On the $240,000 example, first-year principal paydown alone is about $1,947 — roughly double the $995 of cash flow.
That is an argument for reading cash-on-cash alongside IRR, not for ignoring it. Cash-on-cash has one irreplaceable virtue: it is the only common metric made entirely of money you can actually spend, this year, without selling or refinancing anything. Everything else is either an accounting entry or a forecast.
Run your own numbers in the free cash-on-cash calculator, or the full analyzer to see it beside DSCR, cap rate and a multi-year projection.
Frequently asked questions
What is a good cash-on-cash return on a rental property?
For a stabilised, financed rental bought at market in 2026, roughly 4 to 8% is realistic, and 8 to 12% is strong. Below 4% you are relying on appreciation and principal paydown for most of your return, which is a defensible strategy but should be a deliberate one.
Is a 5% cash-on-cash return good?
It is around the middle of the current market for a leveraged rental. Whether it is good depends on your alternative: 5% is a thin premium over risk-free short-term rates given the illiquidity, tenant risk and capital costs of owning property, but it comes alongside principal paydown and any appreciation, which the risk-free alternative does not offer.
Does cash-on-cash return include appreciation?
No. It counts only actual cash flow against actual cash invested. Principal paydown, appreciation and tax effects are all excluded, which is why it typically reads far lower than a total-return figure on the same deal.
Why is my cash-on-cash return lower than the cap rate?
Because your mortgage costs more than the property yields. When the cap rate sits below the mortgage constant — annual debt service divided by loan amount — borrowing dilutes rather than amplifies the return, and cash-on-cash comes in under the cap rate.
Should cash-on-cash be calculated before or after tax?
The standard convention is pre-tax, because tax treatment depends on your personal situation rather than the property. Keep it pre-tax so you can compare deals, and handle tax separately with your accountant.