Cash-on-cash return is a key metric for rental property investors that measures the annual pre-tax cash income earned on the actual cash invested in a property. Unlike the cap rate, which ignores financing, the CoC return accounts for mortgage payments and is based only on the cash you actually put into the deal.

The formula divides annual before-tax cash flow by the total cash invested. For example, if you invest $80,000 in cash (down payment plus closing costs) and earn $12,000 per year in net cash flow after all expenses and mortgage payments, your cash-on-cash return is 15%. This is a straightforward way to evaluate how hard your money is working for you.

A good cash-on-cash return depends on your market and investment strategy. In competitive urban markets, 6-8% might be considered strong, while investors in secondary markets may target 10-15% or higher. Keep in mind that CoC return does not factor in property appreciation or equity buildup through mortgage paydown, so it should be used alongside other metrics for a complete picture.