# Cash-on-Cash Return

> Cash-on-cash return measures annual pre-tax cash flow as a percentage of total cash invested. It's the most practical metric for leveraged STR buyers.

Canonical: https://www.underwriteapp.com/learn/cash-on-cash-return


## Definition

**Cash-on-cash return** (CoC) measures annual pre-tax cash flow as a percentage of the total cash invested.

$$\text{CoC} = \frac{\text{Annual Pre-Tax Cash Flow}}{\text{Total Cash Invested}}$$

It answers: **for every dollar I put in out-of-pocket, how much cash do I get back each year?**

## How to Calculate Cash-on-Cash Return

### Total cash invested

This is all cash you deploy at closing:

- Down payment
- Closing costs (typically 2–5% of purchase price)
- Furnishing and setup (for a new STR: $15,000–$40,000 depending on size)
- Initial operating capital reserve

**Example:** $87,500 down (25%) + $7,000 closing + $20,000 furnishing = **$114,500 total cash in**

### Annual pre-tax cash flow

Cash flow = NOI − Annual Debt Service

**Example:**
- NOI: $25,450
- Annual mortgage payment (P&I on $262,500 at 7%, 30yr): $20,990
- **Annual cash flow: $4,460**

### Calculate CoC

$4,460 ÷ $114,500 = **3.9% cash-on-cash return**

This deal would need higher occupancy, ADR improvement, or a lower purchase price to meet a typical 8% target.

## The Leverage Effect

Leverage amplifies both gains and losses:

| Scenario | Property Value | NOI | Debt Service | Cash Flow | Cash In | CoC |
|----------|---------------|-----|--------------|-----------|---------|-----|
| All cash | $350,000 | $25,450 | $0 | $25,450 | $350,000 | 7.3% |
| 25% down @ 7% | $350,000 | $25,450 | $20,990 | $4,460 | $114,500 | 3.9% |
| 25% down @ 5% | $350,000 | $25,450 | $16,880 | $8,570 | $114,500 | 7.5% |

At current rates, positive leverage (CoC > cap rate) requires very strong operating income or low purchase prices.

## Relationship to [what-is-cap-rate](/learn/what-is-cap-rate)

A quick rule: if the cap rate exceeds the mortgage constant (annual debt service ÷ loan amount), leverage is positive. If the mortgage constant exceeds the cap rate, leverage is negative.

In 2026, with rates near 7%, the mortgage constant on a 30-year loan is approximately 8.0%. This means most STRs at 6–7% cap rates carry **negative leverage** — all-cash returns are better than leveraged returns.

## Why CoC Is the Right Metric for Operators

Cap rate is useful for comparing properties and markets. CoC is what you live with — it determines whether the investment generates cash each month.

Track CoC alongside:
- **Equity multiple** — total return including appreciation over hold period
- **IRR** — time-weighted return accounting for when cash flows occur