Cash on cash return: what a listing's Cash ROI tells you

Cash on cash return tells you how much cash a rental puts in your pocket each year compared with the cash you put in to buy it. If you invest $58,000 and the property clears $5,800 a year, your cash on cash return is 10%.

Every listing on Lineage's site shows a version of this number, labeled "Cash ROI." Below is what the metric measures, how it works on that listing, and what it can't see.

The formula

Cash on cash return = annual pre-tax cash flow ÷ total cash invested

Annual pre-tax cash flow is the rent you collect in a year minus everything you pay to own the property: the loan payment, taxes, insurance, and operating costs like management and repairs.

Total cash invested is what you put in to buy it, meaning the down payment plus closing costs and other upfront expenses.

The denominator is what sets it apart. It's your cash, not the property's price, so financing counts. Borrow more and you put in less, and the same cash flow turns into a higher percentage.

A worked example: 2107 S Seale Rd

This example uses only the figures on one listing, 2107 S Seale Rd in Phenix City, Alabama. It's our own calculation, shown step by step, and it is deliberately simple.

Cash in is about $58,000 to close, including the $46,000 down payment.

$6,036 ÷ $58,000 = about 10.4%.

The listing shows "Cash ROI 9.5%." The site defines Cash ROI as "the projected average yearly cash flow over 10 years on a 20% down payment, interest-only, after vacancy and maintenance," taken from each property's own pro forma. So it differs from the simple version in two ways. It subtracts vacancy and maintenance, which our table leaves out, and it averages 10 projected years instead of showing year one. For scale, every extra $50 a month of cost takes about one point off the result on $58,000 of cash.

The bigger lesson is that two people can quote different cash on cash returns on the same property depending on what they subtract. When you see the number, ask what went into the cash flow line.

Build my plan to see what cash flow does across several rentals over 10 years.

Cash on cash, cap rate, and total return answer different questions

People mix these three up all the time.

Cash on cash return asks what your cash is earning in cash, after the loan. Your financing shapes it, which makes it the most personal of the three.

Cap rate asks what the property earns before any financing. It's net operating income, meaning rent minus operating costs but not the mortgage, divided by the price. On Seale Rd, rent minus only the listed taxes and insurance is $18,000 a year, or about 7.8% of $230,000. That overstates the cap rate, because management, vacancy, and repairs are operating costs too. With example figures for those three, our NOI article gets about 6.1%. Because it ignores the loan, cap rate lets you compare properties no matter how they're financed.

Total return asks how much wealth the rental builds. It adds cash flow to appreciation, principal paydown, and tax benefits. Cash on cash covers only the first of those.

For a fuller tour, see real estate investment metrics, and for the broader calculation, how to calculate ROI on a rental property.

What a "good" number depends on

There's no single good cash on cash return. It depends on what you're comparing it with and what you're giving up.

Your financing. A higher rate shrinks cash flow. Holding everything else on Seale Rd equal, here's how the simple version moves with the rate.

Your market. Where prices run high compared with rents, cash on cash comes out lower, and investors buying there are counting more on appreciation.

Your goal. If you want income now, you'll weigh cash on cash heavily. If you're building a portfolio over 10 years, total return matters more.

The costs you include. A figure that skips management, vacancy, and repairs will always beat one that counts them.

What cash on cash hides

Appreciation and paydown. A property with 6% cash on cash and strong appreciation can build more wealth than one with 10% and none, and the metric can't tell them apart.

The down payment effect. Put more down and cash flow rises, but the cash you invested rises faster. On Seale Rd, holding closing costs at about $12,000, 20% down gives about 10.4%, 25% down about 9.8%, and 30% down about 9.3%. Less debt means more cash flow and a lower percentage at the same time, which surprises a lot of people.

Time. The standard version is a year-one snapshot. The listing's Cash ROI averages 10 projected years instead. Rents change, expenses change, and an interest-only payment eventually becomes an amortizing one. The number at purchase won't be the number in year eight.

A thin cushion. A high percentage on a small cash investment looks great until one vacancy or one repair eats a year of cash flow.

The figures above are illustrative examples from one listing, not a projection or promise of returns. Actual returns vary with market conditions, property performance, and financing terms. This is not investment advice.

Compare listings on properties, then build my plan to see how they fit together. Or talk to a consultant about the numbers on a specific rental.