Cash-on-Cash Return
The annual pre-tax cashflow from a property expressed as a percentage of the total cash invested, measuring the return on your actual capital deployed.
Cash-on-cash return measures the annual return you earn on the actual cash you have invested in a property — not the total property value. It is arguably the most useful metric for comparing leveraged investments.
Cash-on-Cash Return = (Annual Pre-Tax Cashflow ÷ Total Cash Invested) × 100
What Counts as "Cash Invested"?
Total cash invested includes:
- Deposit (e.g., 25% of purchase price)
- Stamp duty (SDLT)
- Legal fees
- Survey and valuation costs
- Refurbishment costs (if any)
Example
| Item | Amount |
|---|---|
| Purchase price | £200,000 |
| Deposit (25%) | £50,000 |
| SDLT (additional property) | £7,500 |
| Legal fees | £1,500 |
| Total cash invested | £59,000 |
| Annual net cashflow | £3,600 |
| Cash-on-cash return | 6.1% |
Why It Matters
Cash-on-cash return captures the effect of leverage. A property yielding 4% net might produce an 8% cash-on-cash return if purchased with a 75% LTV mortgage — because you only invested 25% of the property value but benefit from the full rental income (minus mortgage costs).
Conversely, a cash purchase eliminates mortgage risk but typically produces a lower cash-on-cash return because all your capital is locked in one asset.