Cash-on-cash return tells you more than the purchase price ever will.

New investors fixate on price. The number that shows whether a rental actually works is cash-on-cash return (CoC): annual pre-tax cash flow divided by the total cash you put in.

Example: you're all-in for $50,000 (down payment, closing, rehab). After every expense — mortgage, taxes, insurance, vacancy, maintenance, management — the property nets $5,000 for the year. That's a 10% CoC ($5,000 ÷ $50,000).

Why it matters: two deals at the same price can return very differently depending on financing and expenses. CoC lets you compare a rental against other rentals — and against leaving the money elsewhere.

Takeaway: Run cash-on-cash on conservative numbers before you fall for a property.