The clean operating yield for a rental property — annual pre-tax cash flow divided by total cash invested. Compare two deals on equal footing, regardless of price or financing.
Cash-on-Cash Return (CoC) measures the annual pre-tax operating return on the actual capital you have in a property. The formula is CoC = Annual cash flow ÷ Total cash invested. It is the most honest single-number summary of a leveraged buy-and-hold investment because it incorporates financing, all operating expenses, and the true capital base — not just the down payment.
Cap rate is unlevered — Net Operating Income (NOI) divided by purchase price. Two properties with identical cap rates can have very different cash-on-cash returns depending on financing. Cap rate tells you the asset yield; cash-on-cash tells you the equity yield. For comparing two leveraged single-family rentals, use cash-on-cash. For comparing across asset classes (commercial vs SFR), cap rate is the lingua franca.
DSCR is the lender's metric — it asks "does rent cover the mortgage." Cash-on-cash is the investor's metric — it asks "what yield am I earning on my capital." A property can have a strong DSCR (1.25+) and a poor cash-on-cash if the down payment was huge and opex eats the rent above debt service. The two are complementary, not redundant. Run both on every deal: DSCR Calculator checks the financing math; this calculator checks the investment math.
Down payment, acquisition closing costs (lender + title + escrow + recording), initial rehab or turnover work, and operating reserves (we recommend 6 months of PITIA, which DSCR lenders also require). Excluding reserves inflates cash-on-cash and understates the real capital base. For a true comparison across deals, be consistent about what counts as invested capital.
Vacancy is unavoidable — even strong rentals turn every 18–36 months. A 7–10% vacancy + repair reserve captures both turn risk and routine capex. Management is a labor cost: if you self-manage, you are paying yourself the 8%, just in time rather than dollars. Excluding it makes self-managed properties look better than professionally-managed ones on paper, which distorts comparisons across deals and across operators.
Running a specific deal? Call (903) 402-5626 — we structure investor files weekly.
In cash-flow-first markets (Texas Tier-2 metros, Midwest, Southeast Sunbelt), strong buy-and-hold investors target 8–12% cash-on-cash post-leverage. In appreciation-heavy coastal markets, 4–8% is more common because the bet is on price appreciation, not cash flow. Below 4% the deal is essentially a leveraged appreciation play. Above 12% suggests either an exceptional acquisition or assumptions that need stress-testing.
Cap rate is unlevered — NOI divided by purchase price, ignoring financing. Cash-on-cash is post-leverage — annual after-debt cash flow divided by total cash invested. Two properties with identical cap rates can have very different cash-on-cash returns depending on financing structure. Cap rate tells you the asset yield; cash-on-cash tells you the equity yield.
Everything actually out-of-pocket to make the property a rented, cash-flowing asset: down payment, acquisition closing costs (lender, title, recording), initial rehab or turnover costs, and operating reserves (we recommend 6 months of PITIA in reserves for any DSCR-qualified property). Excluding reserves understates your true capital base and inflates cash-on-cash.
Vacancy is unavoidable — even strong rentals turn every 18–36 months and lose 1–2 months of rent during turnover and re-listing. A 7–10% vacancy + repair reserve captures both turn risk and the routine capex that compounds over time. Management is a labor cost — if you self-manage, you are paying yourself the 8%, just in time rather than dollars. Excluding it makes self-managed properties look better than professionally-managed ones on paper, which distorts comparisons.
No — this is pre-tax cash-on-cash. Real estate offers material tax advantages (depreciation, cost segregation, 1031 exchanges) that improve after-tax returns above the pre-tax cash-on-cash number, sometimes meaningfully. For pre-tax comparison across investments and across investors with different tax situations, pre-tax cash-on-cash is the standard.
One of our investor-loan specialists will reply within 1 business day with a pre-quote and a checklist.
Strong CoC + qualifying DSCR is the deal that closes. Send the scenario, we'll quote it across our DSCR shelf and reply within 1 business day.