What is Cash-on-Cash Return for Airbnb and STR Investments?
Cash-on-cash return measures what you actually earn on the money you invested out-of-pocket. It's the most important ROI metric for STR investors using financing.
When evaluating a short-term rental investment, there is no metric more grounding than cash-on-cash return. It answers one direct question: what percentage return am I actually earning on the dollars I personally invested?
What Is Cash-on-Cash Return?
Cash-on-cash return (CoC) is an annual return metric that compares a property's annual pre-tax cash flow to the total cash you invested to acquire it. Unlike cap rate, it accounts for your financing — making it the go-to return metric for leveraged real estate investors.
Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100
Cash-on-Cash Return Example
You purchase an STR for $400,000 with 25% down ($100,000). Closing costs: $8,000. Furnishing: $15,000. Total cash invested: $123,000. The property generates $70,000 annually. After operating expenses of $28,000 and mortgage payments of $24,000, annual pre-tax cash flow is $18,000.
Cash-on-Cash Return = $18,000 ÷ $123,000 × 100 = 14.6%
What Is a Good Cash-on-Cash Return for an STR?
- Under 5%: Weak — consider REITs or index funds instead
- 5–8%: Acceptable — in line with long-term rental benchmarks
- 8–12%: Good — the STR premium over traditional rentals is showing
- 12–20%: Excellent — well-located, well-managed STR in a strong market
- 20%+: Exceptional — verify assumptions; often reflects favorable purchase price or light competition
Cash-on-Cash Return vs. Cap Rate
Cap rate ignores financing — it measures a property's return as if purchased all-cash. Cash-on-cash return includes your specific mortgage terms and measures what you actually earned on your invested cash. Use cap rate to compare properties. Use CoC to evaluate your actual investment performance.
Does cash-on-cash return account for appreciation?
No. CoC only captures cash flow — it doesn't account for property value appreciation, equity paydown, or tax depreciation benefits. Total return is typically significantly higher than the CoC figure alone.
Calculate CoC return for every property with Milo AI — start free with MagicBnB.
About MagicBnB
MagicBnB is the portfolio intelligence platform for short-term rental operators. Connect your Hospitable or Hostfully PMS and bank account through Plaid to track true net profit, ADR, occupancy, and all the metrics that matter — per property, not just in aggregate. Milo, your AI Revenue & Profit Manager, answers questions about your portfolio in plain English. Use the Deal Analyzer to underwrite new acquisitions before you commit. Free plan available — 5 deal analyses included. Start at magicbnb.io.
