Short-term rental
Cash-on-cash return
Also written: CoC return
What Cash-on-cash return means
Cash-on-cash return measures the annual pre-tax cash flow earned on a short-term rental property relative to the total initial cash invested. Expressed as a percentage, it evaluates net income against out-of-pocket equity rather than total purchase price or asset value.
Formula
Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Initial Cash Invested) × 100
How it is used
Investors and operators use cash-on-cash return to compare the yield of leverage-financed acquisitions against alternative investments. Unlike total ROI, it isolates immediate cash performance from future equity appreciation and principal reduction. Revenue managers and general managers use this metric to determine whether pricing strategies generate sufficient net cash flow to service debt and cover operating overhead. High cash-on-cash return signals efficient capital deployment, guiding decisions on down payments, renovation budgets, and debt structure.
Worked example
An investor purchases a short-term rental property for $400,000 using $100,000 down payment, $10,000 in closing costs, and $15,000 in furnishings, totaling $125,000 initial cash invested. In year one, the property generates $75,000 gross revenue, incurs $35,000 operating expenses, and pays $25,000 debt service, leaving $15,000 pre-tax cash flow. The cash-on-cash return is ($15,000 / $125,000) × 100 = 12%.
Common mistake
Operators often confuse cash-on-cash return with cap rate by excluding debt service or failing to account for initial capital expenditures like upfront decor and licensing fees.
Related terms
Work it out
Cash-on-Cash Return Calculator — What a short-term rental returns on the cash you actually put in.