Cash-on-Cash Return in 2025: The Investor’s Guide to Smarter Property Decisions

When it comes to property investing, Australians are spoilt for choice—but also bombarded with metrics and market noise. In 2025, with mortgage rates stabilising and property values showing cautious growth, investors are seeking reliable, actionable ways to measure returns. Enter cash-on-cash return: a straightforward metric that’s gaining traction as a decision-making powerhouse for both new and seasoned investors.

What Is Cash-on-Cash Return?

Cash-on-cash return (CoC) measures the annual pre-tax cash income earned on the cash invested in a property. Unlike yield calculations that look at total property value, CoC focuses on actual out-of-pocket investment—making it a clear, apples-to-apples way to compare deals.

• Formula: (Annual pre-tax cash flow ÷ Total cash invested) × 100

• Example: If you invest $100,000 of your own money and receive $7,000 in annual cash flow, your CoC return is 7%.

This metric strips away the confusion of leverage, depreciation, and paper profits, putting the spotlight on real, spendable cash. In 2025, as lenders continue to scrutinise borrowing capacity and investors look to preserve liquidity, this clarity is more valuable than ever.

Why Cash-on-Cash Return Matters in 2025

The property market landscape in 2025 is markedly different from the boom-and-bust cycles of the last decade. Recent APRA lending updates and the ongoing review of negative gearing are nudging investors to scrutinise cash flow and borrowing strategies more closely. Here’s why CoC return is rising in importance:

• Mortgage rates stabilised: With the RBA keeping rates steady in the low 4% range, many investors are moving from interest-only to principal-and-interest loans. CoC return helps compare properties on the basis of their real cash performance.

• Rental yields are in flux: Regional rental markets remain strong, while some inner-city areas are experiencing softening demand. CoC return allows for direct comparison across regions, factoring in all out-of-pocket costs.

• Deposit requirements are higher: Banks have tightened serviceability buffers, so the amount of cash investors need upfront has increased. This makes the cash-on-cash metric even more relevant for assessing opportunity cost and liquidity.

For example, a Sydney apartment might deliver a 4% gross rental yield but require a $200,000 deposit, while a regional townhouse in Ballarat could offer a 7% yield on a $60,000 cash investment. CoC return cuts through headline rates, showing which deal stretches your cash further.

How to Calculate—and Use—Cash-on-Cash Return

Ready to put this metric to work? Here’s a step-by-step guide tailored for 2025’s property market:

Calculate your total cash investment:

- Deposit

- Stamp duty (check 2025 state rates; e.g., NSW’s First Home Buyer Choice now allows for annual property tax as an alternative)

- Loan establishment fees

- Legal and inspection costs

- Any upfront renovations or repairs

Estimate annual pre-tax cash flow:

- Gross rental income

- Minus mortgage payments (principal & interest)

- Minus council rates, insurance, strata, and maintenance

- Minus property management fees

• Apply the formula: Divide annual cash flow by total cash investment, then multiply by 100.

Real-world example (2025): You buy a townhouse in Geelong for $550,000. With a 20% deposit, stamp duty, and other costs, your cash outlay is $130,000. After all expenses and mortgage payments, your annual cash flow is $8,500. Your CoC return: (8,500 ÷ 130,000) × 100 = 6.54%.

Limitations and Smart Use Cases

Like any metric, cash-on-cash return isn’t perfect. It doesn’t factor in tax deductions, future capital growth, or renovation-driven value increases. But in 2025, with a renewed focus on cash flow and liquidity, it offers a powerful lens for comparing deals, especially if you:

• Are prioritising positive cash flow to offset rising living costs

• Want to compare properties with different deposit requirements

• Are considering joint ventures or syndicate investments

For multi-property investors, CoC return helps allocate limited capital to the highest-yielding opportunities. And for first-timers, it demystifies the numbers—making it easier to spot deals that truly add value from day one.