Q&A · Last reviewed 2026-05-01
What is cash-on-cash return for investment property?
Cash-on-cash return is annual net cashflow ÷ total cash invested (deposit + stamp duty + costs). It tells you what your actual cash deployed is earning, not what the asset's gross yield is. On a typical AU IP it ranges -2% to +6% depending on leverage + tax effects.
Cash-on-cash return = annual after-tax cashflow ÷ total cash invested. Annual after-tax cashflow = rent - mortgage interest - mortgage principal - outgoings + tax refund. Total cash invested = deposit + stamp duty + LMI + legal + inspections + buying-agent fee.
Worked example: $700K purchase, 20% deposit ($140K), $35K stamp duty + $5K other costs = $180K total cash invested. Year-1 rent $30K, interest $32K, principal $8K, outgoings $5K, tax refund $2K = -$13K negative cashflow. Cash-on-cash = -$13K / $180K = -7.2%.
Cash-on-cash improves over the hold: rent indexes up 3-5% annually, interest decreases as principal pays down, depreciation deductions decline (Div 40) but interest deductions stay strong. By year 5 the same property might be at +2% cash-on-cash, year 10 at +5%.
Total return adds capital growth on top: if the property grows 5% annually, that's another $35K paper gain in year 1. Cash-on-cash is the cashflow component; total return is cash + capital. Investors planning a 5-7+ year hold weight total return; investors planning a quick flip weight cash-on-cash + transaction-cost recovery.
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Informational. Not financial advice. Verify with a licensed adviser appropriate to your circumstances.
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