Cash on Cash Return Examples: Three Rentals Worked End to End

Here are three cash on cash return examples worked end to end, all built from the same $500,000 rental so you can see what really moves the number. One is financed, one is bought with cash, one is a small multifamily. If you want the inputs explained line by line first, the step by step formula guide covers each one. This page goes straight to the deals.

The formula, explained in one sentence: cash on cash return is annual pre-tax cash flow divided by total cash invested. Cash flow is what reaches your account after operating costs and loan payments for a year. Cash invested is every dollar you spent to get the property rented. For the short version, see how the calculation works.

All three examples share the same facts: a $500,000 property renting for $5,200 a month, $10,000 of work before the first tenant, $6,000 of property taxes and $2,400 of insurance.

Example 1: a financed single-family rental

25% down, 3% closing costs, a $375,000 loan at 7.25% over 30 years.

Line	Amount
Gross scheduled income	$62,400
Vacancy at 5%	($3,120)
Effective gross income	$59,280
Taxes and insurance	($8,400)
Maintenance, reserves, management at 18%	($10,670)
Net operating income	$40,210
Debt service at $2,558 a month	($30,698)
Annual cash flow	$9,512
Cash invested	$150,000
Cash on cash return	6.3%

Cash invested is the $125,000 down payment, $15,000 of closing costs and the $10,000 of make-ready work. Divide $9,512 by $150,000 and you get 6.3%.

One line does most of the damage. That 18% block is maintenance, capital reserves and management, and it is where numbers get fudged. Reserves are not repairs. They are money held back for the roof and the furnace, a capital expenditure that shows up once a decade and costs more than a year of cash flow. Leave management out because you plan to handle tenants yourself and the same house prints 9.5%. Operating expenses you skip in the math still happen in real life.

Example 2: the same house bought with cash

No loan. Cash invested is the full $500,000 price plus $15,000 of closing and $10,000 of work, so $525,000. With no debt service, annual cash flow is the entire net operating income of $40,210. That is a 7.7% cash on cash return.

The all cash return beats the financed one, which catches people off guard. The property yields 8.0% of its price. The loan costs $30,698 a year on a $375,000 balance, or 8.2% of the balance once principal is counted. Borrowing at 8.2% to earn 8.0% loses a little on every dollar. That is negative leverage, and the guide on borrowing works through it. At a 5% rate the same financed deal pays 10.7%, because then the loan costs less than the property earns.

Example 3: a small multifamily at the same price

A $500,000 fourplex, four units at $1,300 each, so the same $5,200 of monthly rent. Same 25% down, same $15,000 of closing costs, same $10,000 of make-ready, same loan. One assumption changes: four tenants turn over more often than one, so vacancy is 8% instead of 5%.

Line	Amount
Gross scheduled income	$62,400
Vacancy at 8%	($4,992)
Effective gross income	$57,408
Taxes and insurance	($8,400)
Maintenance, reserves, management at 18%	($10,333)
Net operating income	$38,675
Debt service at $2,558 a month	($30,698)
Annual cash flow	$7,977
Cash invested	$150,000
Cash on cash return	5.3%

Same price, same rent, same loan, a full point lower. The vacancy allowance did all of it. That is not an argument against small multifamily. It is an argument for pricing vacancy the way it will actually behave. When one unit sits empty, the fourplex loses a quarter of its income and the house loses all of it. A single percentage cannot show that difference in risk.

The three side by side

	Financed house	All cash house	Financed fourplex
Cash invested	$150,000	$525,000	$150,000
Net operating income	$40,210	$40,210	$38,675
Debt service	$30,698	$0	$30,698
Annual cash flow	$9,512	$40,210	$7,977
Cash on cash return	6.3%	7.7%	5.3%

The all cash deal has by far the largest cash flow and still the middling return, because $525,000 is a large denominator. The two financed deals tie up identical money and differ only in what they collect.

What moves the number most

Cash invested, first. Put 20% down on the house instead of 25% and you invest $125,000, borrow $400,000 and pay $32,744 a year. Cash flow falls to $7,466 and the return drops to 6.0%. Less money in, lower return, because the loan costs more than the property earns.

The interest rate, second. Everything above holds at 7.25%. At 5% the financed house pays 10.7% on the same cash.

Expense assumptions, third. Vacancy, reserves and management are the three lines investors shade, and they are worth two to four points of return on a deal this size. Expense ratios vary by property age and local tax rates, so use your own bills rather than a rule of thumb.

Run your own deal

If you already know your two numbers, skip the line items: $12,000 of annual cash flow on $150,000 invested is 8%. The cash on cash return calculator on the home page runs both paths, the full line-by-line build and the quick two-number check, and shows the all cash return beside the financed one so you can tell at a glance whether the loan is helping.