Cash-on-cash return
Use cash-on-cash return to judge whether the rent and debt mix justify the upfront capital tied up in a property.
Introduction
Cash-on-cash return answers a practical question: if you deploy a fixed amount of cash into a deal, what annual cashflow do you get back before tax?
It is especially useful for comparing properties with different debt structures because it focuses on the cash you invested, not just the asset value.
Formula and explanation
The basic formula is annual pre-tax cashflow divided by total cash invested upfront.
In Property ROI, total invested means the deposit plus stamp duty because those are the two immediate capital outlays that determine how much cash you had to commit.
- Annual pre-tax cashflow starts with rent collected.
- Agent fees, rates, strata, and debt costs are deducted before the result is calculated.
- A positive result means the property is returning cash on top of capital preservation.
How to interpret it
A stronger cash-on-cash return usually means the deal is easier to hold without injecting extra cash every year.
That does not automatically make it the best investment, because capital growth, vacancy, tax, and refinancing risk still matter.
Common mistakes
A common mistake is comparing gross rental yield with cash-on-cash return as though they measure the same thing.
Yield ignores leverage and many holding costs. Cash-on-cash return is narrower and more operational, which makes it better for testing whether the numbers work in practice.
How the calculator maps inputs
The hold calculator uses purchase price, deposit, stamp duty, rent, interest rate, and annual expenses to compute first-year cashflow and multi-year outcomes.
If you want the quickest view, focus on Year 1 cashflow and the ROI rows in the annual projection table.
Related next step
After you understand the headline return, stress-test whether a slightly higher purchase price or lower rent would still keep the property viable.