When analyzing a rental property, how do you calculate cash-on-cash return?
I’ve been looking at how different investors account for the total cash invested. Beyond the down payment, do you include closing costs, initial repairs, renovations, and other upfront expenses?
For example, if a property produces $7,400 in annual net cash flow and the total cash invested is $100,000, the cash-on-cash return would be 7.4%.
I’m curious how other investors calculate this and whether you use a specific formula or tool when comparing different rental deals.
Investor · Collierville, TN 38017 · Member since 2017 · 612 posts · 453 votes
6h
Simple formula: annual pre-tax cash flow divided by total cash invested, times 100. Using your example: $7,400 in annual net cash flow divided by every dollar you actually left in the deal — down payment plus closing costs plus any rehab and carrying costs you paid out of pocket. If that total is $40,000, you're at $7,400 / $40,000 = 18.5% cash-on-cash. The part most beginners miss is the denominator. It's not just the down payment — it's rehab overruns, holding costs, and anything else you funded. After a BRRRR refinance where I've pulled most of my cash back out, the denominator shrinks and the cash-on-cash number looks huge. That's the entire point of the strategy. Always calculate it on the cash still trapped in the deal, not the purchase price.