Direct answer
A good cash-on-cash return for an Airbnb is 8-12% a year. Under 5% is poor, 12-15% is very good, and projections above 15% often mean optimistic occupancy or underestimated expenses.
Cash-on-cash return = annual net cash flow / total cash invested x 100
Contents
Cash-on-cash return tells you what your invested dollars earn each year. Because it is a percentage of cash invested, you can compare it across properties and against other investments. For a broader overview of STR returns, see our guide to short-term rental ROI.
What is cash-on-cash return?
Cash-on-cash return measures the annual return on the actual cash you invested. You calculate it by dividing your annual net cash flow by your total cash invested (down payment plus closing costs). The result tells you what percentage of your cash investment you're getting back each year in profit.
The formula
Cash-on-Cash Return =
(Annual Net Cash Flow / Total Cash Invested) × 100
The formula has two parts:
- Annual net cash flow: total rental income minus all STR expenses (mortgage, taxes, insurance, utilities, cleaning, platform fees, maintenance, etc.)
- Total cash invested: down payment plus closing costs, which run about 3% of the purchase price
Example calculation
$9,800 / $98,000 = 10% cash-on-cash return
What's a good cash-on-cash return?
Here's how to interpret your cash-on-cash return:
Cash-on-cash return vs cap rate vs ROI
These three metrics measure different things. The table shows what each one includes and when to use it.
| Metric | Formula | Includes financing? | Best for |
|---|---|---|---|
| Cash-on-Cash | Net Cash Flow / Cash Invested | Yes | Measuring what your invested cash earns |
| Cap rate | NOI / Purchase Price | No | Comparing properties to each other |
| ROI | Total Return / Total Investment | Varies | Long-term total return (includes appreciation) |
Cap rate is for comparing properties
Cap rate (net operating income / purchase price) leaves out financing so you can compare properties on the same basis. A $300,000 property earning $21,000 NOI has a 7% cap rate regardless of whether you pay cash or put 25% down. That makes cap rate useful for screening deals. It does not tell you what your own cash will earn, because most investors borrow to buy. A property with a 6% cap rate might deliver 12% cash-on-cash with favorable financing, or just 4% with a high interest rate. For more on cap rates, see our guide to Airbnb cap rates.
ROI has no single definition
Investors calculate ROI in different ways. Some include appreciation, some don't. Some count principal paydown, some don't. That makes ROI figures from different sources hard to compare. Cash-on-cash has one definition. It compares the cash you put in with the cash the property pays you each year.
When to use each metric
Use cap rate when screening deals and comparing properties in the same market. Use cash-on-cash to see what your invested dollars will earn. Use ROI when considering long-term total returns including appreciation and equity buildup. For day-to-day deal analysis, cash-on-cash is the most actionable metric.
How the interest rate changes the return
Small changes in loan terms move cash-on-cash return a lot. The table shows the same $350,000 property at four interest rates, with every other input unchanged.
| Interest rate | Monthly mortgage | Annual cash flow | Cash-on-Cash |
|---|---|---|---|
| 5.5% | $1,490 | $13,320 | 13.6% |
| 6.5% | $1,659 | $11,292 | 11.5% |
| 7.5% | $1,836 | $9,168 | 9.4% |
| 8.5% | $2,019 | $6,972 | 7.1% |
Assumes a $350,000 purchase, 25% down ($87,500), $10,500 in closing costs, and $98,000 total invested. Annual gross revenue is $48,000 with a 35% expense ratio, not counting the mortgage. A 3-point interest rate difference cuts cash-on-cash return nearly in half.
The same property can be a good deal for one investor and a poor one for another. Financing terms, down payment, and expense assumptions all change the result. Use our Deal Analyzer to model different scenarios with your own numbers.
What affects your cash-on-cash return
Down payment size
A larger down payment lowers the monthly mortgage and raises cash flow, but it also raises the cash invested. A smaller down payment often produces a higher cash-on-cash return because of the extra leverage, but it leaves thinner margins.
Interest rate
Higher rates cut cash-on-cash return. A 1-point rate increase on a $250,000, 30-year loan adds about $160-$170 a month to the mortgage payment at rates between 5.5% and 8%, and that comes straight out of cash flow.
Occupancy and nightly rate
These set your revenue, and overestimating them is a common way investors lose money. Use conservative estimates based on comparable properties. Our Deal Analyzer calculates your break-even occupancy to show how much cushion you have.
Get market data with AirDNA (Sponsored partner link)Operating expenses
Cleaning, utilities, insurance, maintenance, and platform fees all add up. Underestimating them is another common way investors lose money.
Furnishing costs
Furnishing is a separate startup expense. Use our Furnishing Budget calculator to estimate these costs. Our Deal Analyzer calculates cash-on-cash return from down payment plus closing costs, the standard basis for comparing deals.
Common mistakes to avoid
Using inconsistent investment definitions
Our Deal Analyzer uses down payment plus closing costs. Some investors also include furnishing. Use the same definition for every deal you compare.
Using projected occupancy that's too optimistic
New listings often take 3-6 months to build bookings, so first-year occupancy is usually lower than later years. Use a conservative first-year estimate.
Not accounting for all expenses
Maintenance reserves, supplies, software subscriptions, professional photos, and minor repairs can add up to thousands of dollars a year.
Comparing cash-on-cash return across markets without context
An 8% cash-on-cash return in a market with strong appreciation may beat 12% in a market where prices are flat. Look at total return potential too.
Calculate your cash-on-cash return
The free Deal Analyzer calculates cash-on-cash return, monthly cash flow, and break-even occupancy.