Rental yield tells you what a property earns relative to its price. But most investors don't pay the full price — they put in a deposit and borrow the rest. Cash-on-cash return answers a sharper question: for every dollar of my own cash I actually invested, how much cash does the property return each year?
Because it works off the cash you personally committed rather than the full property value, cash-on-cash return is the number that reflects the effect of leverage. It is the metric that comes closest to how a self-funded investor experiences the deal in their own bank account.
The formula
Cash-on-cash return divides the annual pre-tax cash flow by the total cash you put into the deal.
Annual pre-tax cash flow
Rent − running costs − loan repayments
What lands in your pocket over a year after every recurring cost is paid, including the mortgage. This is the numerator, and it can be positive (the property pays you) or negative (you top it up).
Total cash invested
Deposit + purchase costs + upfront works
Every dollar of your own money that went into acquiring the property — the deposit, stamp duty, legal fees, building inspections and any initial renovation. This is the denominator.
Cash-on-cash return = Annual pre-tax cash flow ÷ Total cash invested × 100
A worked example
You buy a $600,000 property with a 20% deposit of $120,000, plus $30,000 in stamp duty and other purchase costs — so your total cash in is $150,000. The property rents for $550 a week ($28,600 a year). Running costs are $5,600 and loan repayments are $19,200, leaving annual cash flow of $3,800.
Cash-on-cash return is $3,800 ÷ $150,000 = 2.53%. Notice the gross yield on this property is 4.77% — but once you account for the mortgage and only count your own cash, the return your deposit actually earns in the first year is far lower.
How it differs from yield
Yield ignores your loan entirely — it describes the property. Cash-on-cash return describes your position in the property. Add a bigger loan and yield doesn't move, but cash-on-cash return changes sharply: more leverage means less of your own cash committed, which can lift the percentage even as the dollar cash flow shrinks.
That is why cash-on-cash return is the favourite metric of investors who care about how efficiently their deposit is deployed, rather than how the bricks and mortar perform in isolation.
What cash-on-cash return leaves out
- Capital growth — it only counts cash flow, so a property that is quietly appreciating looks worse than it really is.
- Principal paid down — the slice of each loan repayment that reduces your debt builds equity, but it isn't counted as a return here.
- Tax effects — it is a pre-tax measure, so depreciation and deductions that improve your after-tax position are invisible.
- Time — it is a single-year snapshot. It says nothing about how the return evolves as rents rise and the loan is paid down.
Model the return on your cash
Use our free ROI calculator to see how deposit size, costs and rent combine into a return on the cash you invest.
Open the ROI calculator