Cash-on-Cash Return Explained: What’s a Good Return in 2026?
RealtyDealScout Team
August 12, 2026
If cap rate tells you how a property performs unlevered, cash-on-cash return tells you how you perform — the actual annual return on the actual cash you put into the deal, after your mortgage payment. For most buy-and-hold investors financing with a loan, this is the number that matters most day to day.
The Cash-on-Cash Formula
Cash-on-Cash Return = (Annual Cash Flow ÷ Total Cash Invested) × 100
Annual cash flow is NOI minus your annual mortgage payment (principal + interest) — this is sometimes called NOI after financing, or NIAF on a monthly basis. Total cash invested is every dollar you actually wrote a check for: down payment, closing costs, and any upfront repair reserve. It does not include the financed portion of the purchase price.
Worked Example
Continuing with the $200,000 / $2,400-rent property from our cap rate guide (NOI of $14,640), let’s add financing: 20% down, 7% interest, 30-year fixed.
| Line item | Amount |
|---|---|
| Purchase price | $200,000 |
| Down payment (20%) | $40,000 |
| Closing costs (3%) | $6,000 |
| Total cash invested | $46,000 |
| Loan amount | $160,000 |
| Monthly mortgage (P&I) | $1,064 |
| Annual mortgage (debt service) | $12,773 |
| NOI | $14,640 |
| − Annual mortgage | $12,773 |
| = Annual cash flow | $1,867 |
4.1%
$1,867 annual cash flow ÷ $46,000 total cash invested × 100 (about $156/month)
Notice this property’s cap rate (7.3%) and cash-on-cash return (4.1%) tell different stories
That gap is the cost of leverage at today’s rates — the mortgage is eating most of the NOI. This is exactly why relying on cap rate alone can be misleading once you’re financing the deal rather than paying cash.
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What's a Good Cash-on-Cash Return?
| Cash-on-cash return | General read |
|---|---|
| 8%+ | Strong |
| 5% – 8% | Fair |
| Below 5% | Weak — leverage is costing you more than it’s earning you |
These bands shift with interest rates. At 4% mortgage rates, hitting 8%+ cash-on-cash was routine. At 7%+, more of every rent dollar goes to debt service, and a solid deal today often lands in the 5–8% range — which is why comparing your numbers to a benchmark from a few years ago can be misleading.
Why Down Payment Size Changes Everything
Cash-on-cash return is sensitive to how much you finance. Put more down, and your annual mortgage payment shrinks, cash flow improves — but so does the cash you invested, which can pull the *percentage* return down even as the dollar amount goes up. There’s no universally "right" down payment; it depends on whether you’re optimizing for return percentage, monthly cash flow in dollars, or how much capital you have to deploy across multiple properties.
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