Cash on Cash Return: How to Calculate It for UK Property

Landlord calculating rental property cash return

Cash on cash return is the annual pre-tax cash flow a property produces, divided by the total cash you put in, shown as a percentage. If you invest £50,000 of your own money and the property leaves you £2,500 a year after all costs and mortgage payments, your cash on cash return is 5%. It measures what your own money earns, not what the whole property earns, which is why it suits mortgaged buy-to-let far better than a headline yield.

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Key points

The formula is annual pre-tax cash flow ÷ total cash invested × 100.
Cash invested is more than your deposit: include stamp duty, legal fees, refurbishment and broker fees.
Cash flow is rent minus voids, running costs and mortgage payments, so the interest rate moves the result sharply.
ROI looks at total return, including capital growth. Cash on cash looks only at the yearly cash your money produces.
A 20% return is possible only under unusual assumptions, and most standard lettings will sit well below it.

What does cash on cash return mean for a UK property?
How do you calculate cash on cash return?
What does a worked UK buy-to-let example look like?
Is cash on cash return the same as ROI?
What taxes affect your real return?
What is a good cash on cash return in the UK?
Can a UK property reach a 20% return?
How do you stress test a deal before you offer?
Why we look at cash on cash return alongside everything else
How can you check the numbers before you make an offer?
FAQ
Sources

What does cash on cash return mean for a UK property?

Cash on cash return tells you how hard your own cash is working in a given year. Sage defines it as the annual pre-tax cash income a property generates relative to the cash actually invested in it, and notes it is especially useful when the property is financed with a mortgage. That last point matters in the UK, where most landlords borrow.

Compare that with rental yield. Gross yield divides annual rent by the property’s price and ignores the mortgage entirely. Two investors can buy identical flats at the same price, one with a 40% deposit and one with 25%, and they will have the same gross yield but very different cash on cash returns. MoneyWeek reported average UK gross rental yields of 7% in Q2 2026 and 7.22% in Q3 2026, and it describes gross yield as a figure before costs, expressed against property value. Yield is the starting point of a deal. Cash on cash return is what remains in your pocket once the deal is financed and running.

If you want to check the yield side first, our rental yield calculator gives you the gross and net figures in a few seconds.

How do you calculate cash on cash return?

The formula is simple. The work is in getting the two numbers honestly.

Cash on cash return (%) = annual pre-tax cash flow ÷ total cash invested × 100

The same structure appears in Sage’s guide, which says to take annual rental income, deduct vacancy, operating costs and finance charges, and divide by the cash you actually committed.

Step 1: Add up the cash you put in

This is the denominator, and it is where most beginners go wrong by using the deposit alone. Sage lists the deposit, relevant property transaction tax, legal and professional fees, refurbishment or fit-out, broker or sourcing fees and any irrecoverable VAT. For an English or Northern Irish purchase, that means:

Your deposit.
Stamp Duty Land Tax (SDLT). GOV.UK states that you usually pay 5% on top of the standard rates if buying means you will own more than one residential property. Our stamp duty calculator works out the figure for England and Northern Ireland. Scotland and Wales have their own taxes.
Conveyancing and other legal fees.
Mortgage arrangement and broker fees, if you pay them from your own cash.
Refurbishment, furnishing and compliance work before the first tenant moves in.

Refurbishment is the line that tends to be underestimated. Even cosmetic work adds up: the cost of coving and cornice installation is a good example of a small finishing item that belongs in your cash invested figure if you are bringing a tired rental up to a lettable standard.

Our guide to the true cost of buying a house walks through the upfront costs in more detail.

Step 2: Work out the annual cash flow

Start with a full year of rent, then deduct:

A void allowance for periods between tenants.
Management or letting agent fees.
Landlord insurance.
Repairs and maintenance.
Service charges and ground rent, if the property is leasehold.
Landlord-paid business rates or other bills where they apply.
Mortgage payments. On an interest-only mortgage this is the interest. On a repayment mortgage, the capital repaid is also cash leaving your account, so the cash flow is lower, although you are building equity.

Sage lists insurance, maintenance, service charges, management fees, loan interest and a vacancy allowance among the usual deductions. For a sense of what a household costs to run, see our guide to house running costs, which helps if you are letting on an inclusive-bills basis.

Step 3: Divide and express as a percentage

Divide the cash flow by the cash invested, multiply by 100, and you have the figure. The next section puts real numbers through it.

What does a worked UK buy-to-let example look like?

The figures below are illustrative assumptions, not market data. Swap in your own quotes before you rely on them.

The purchase

Price: £150,000
Deposit (25%): £37,500
Mortgage: £112,500, interest-only at 5.5%
SDLT with the 5% surcharge on every band: £8,000 (5% on the first £125,000 is £6,250, and 7% on the final £25,000 is £1,750)
Legal fees: £1,500
Light refurbishment and furnishing: £4,000
Broker fee: £500

Total cash invested: £51,500

The year

Item	Annual figure
Rent at £950 a month	£11,400
Less one month void	-£950
Rent collected	£10,450
Management at 10%	-£1,045
Insurance	-£300
Repairs and maintenance	-£800
Mortgage interest at 5.5%	-£6,187.50
Annual pre-tax cash flow	£2,117.50

Cash on cash return = £2,117.50 ÷ £51,500 × 100 = 4.1%

The gross yield on the same property is £11,400 ÷ £150,000 = 7.6%. That gap between 7.6% and 4.1% is the effect of voids, costs, interest and the extra cash you spent beyond the deposit. It is exactly why experienced landlords do not stop at yield.

For a simpler reference point, FJP Investment UK’s example puts £40,000 invested and £4,000 a year after expenses at a 10% return.

How much does the interest rate change the answer?

A great deal. Holding everything else the same in the example above:

Mortgage rate	Annual interest	Cash flow	Cash on cash return
4.5%	£5,062.50	£3,242.50	6.3%
5.5%	£6,187.50	£2,117.50	4.1%
6.5%	£7,312.50	£992.50	1.9%

A two-point swing in the rate takes the return from 6.3% to 1.9%. When you assess a deal, test it at a rate higher than the one you are quoted today, because you will be remortgaging at the end of any fixed term.

Is cash on cash return the same as ROI?

No. They answer different questions, and mixing them up is the most common reason two people quote different “returns” for the same property.

Investopedia explains that cash on cash return divides annual pre-tax cash flow by total cash invested, while ROI calculates the total return on an investment. FJP Investment UK describes ROI as net profit divided by total investment, multiplied by 100, where profit can include both rental income and capital growth after expenses.

	Cash on cash return	ROI
Measures	Yearly cash income on cash you invested	Total profit on total investment
Includes capital growth	No	Yes, if you count it
Includes mortgage payments	Yes	Depends on how it is defined
Best used for	Comparing financed deals year to year	Judging the whole project, often at sale

To see the difference, take the example above and suppose, purely as an illustration and not a forecast, that the property rises 3% in value in the year. That is £4,500 of growth. Add it to the £2,117.50 cash flow and the total gain is £6,617.50, or about 12.9% of the £51,500 invested. The cash on cash return is still 4.1%, because no cash reached you from the growth until you sell or remortgage.

That is also the limit of the measure. J.P. Morgan notes that cash on cash return is specific to one period and does not capture changing income and expenses, future capital spending, equity built by paying down the loan, appreciation or sale proceeds. Use it alongside other measures, not instead of them.

What taxes affect your real return?

Cash on cash return is pre-tax by definition, so it flatters the position of a higher-rate taxpayer. Two points are worth knowing before you commit.

First, the SDLT surcharge for additional properties is already in your cash invested, as above.

Second, finance costs are treated differently for individuals and companies. GOV.UK explains that from 6 April 2020, Income Tax relief on residential property finance costs is restricted to the basic rate, and that UK and non-UK resident companies are not affected. In practice, a higher-rate taxpayer who owns in their own name can see after-tax income fall well below the pre-tax cash flow. Speak to a qualified accountant about your position before you choose between personal and company ownership, as it is a tax decision and not something a calculator can settle.

What is a good cash on cash return in the UK?

There is no official benchmark, and anyone quoting one number for every property is guessing. What you can say is how the pieces fit together. Average gross yields of around 7% (see the MoneyWeek figures above) are before costs and before finance. Once you take off voids, management, repairs and mortgage interest, the return on your own cash is lower than the yield, and in the example it was about half.

A sensible approach is to set your own minimum return and compare it with what you could earn on lower-risk options, then ask whether the extra risk, effort and illiquidity of being a landlord is paid for. Many landlords also accept a lower cash return on a property in an area where they expect stronger long-term demand, since that growth is outside the cash on cash figure.

Can a UK property reach a 20% return?

It can, but only under assumptions that you should challenge. To reach 20% on the £51,500 in our example, the property would need to leave you about £10,300 a year after all costs and mortgage payments. That is nearly five times the £2,117.50 the example produced.

The routes people use to get there are:

Much higher rent for the price. Multi-room lets such as houses in multiple occupation can produce more rent per pound spent, but they bring licensing, higher management costs, more voids risk and more wear. Check the rules with your local council.
Buying below market value. If you buy at a discount and add value, you reduce the cash invested relative to the property’s worth. That is a skill, and the discount has to be real. Checking sold prices on the same road is a basic first step.
Refinancing to pull cash out. If you recover most of your original cash after a refinance, your remaining cash invested falls, so the percentage can look very high. The cost is higher borrowing and more risk, and lenders set their own limits.
Low cash invested for the cash flow. A very small denominator inflates the percentage. A 20% return on £5,000 is £1,000 a year, which may not be worth the risk.

If you see a 20% claim, ask what cash was counted, whether SDLT and refurbishment are in it, what interest rate was used, and whether voids were allowed for. Most disappointing returns come from leaving those out.

How do you stress test a deal before you offer?

Before you commit cash, run the deal three ways:

Base case: realistic rent, one month void a year, current mortgage quote.
Pressure case: rent 10% lower, two months void, interest rate two points higher.
Cost shock: an unplanned repair of a few thousand pounds in year one.

If the pressure case still covers its costs, the deal has margin. If it needs everything to go right, it does not. Then check that the price you are paying is supported by comparable evidence: our guide to calculating an offer on a house shows how sold prices and asking prices feed into a sensible offer. Paying less for the same rent raises both yield and cash on cash return, so negotiation is part of the return, not separate from it.

Why we look at cash on cash return alongside everything else

Investors often ask us for one number that says whether a property is a good buy. There isn’t one, and cash on cash return shows why. It is excellent at telling you how your own money performs under a given mortgage, and it says nothing about what the property is worth or what the area will do.

That is why we build our reports around several measures at once: comparable sales on the same road and nearby, estimated rental value, ROI, running costs and a mortgage calculator, alongside flood risk, crime and local amenities. A strong return on paper from a property that is overpriced, or in a flood zone, or let in a weak rental area, is not a strong return.

Our view is that cash on cash return should be the last step of your analysis, run on a price you have already tested against the evidence. The data helps you offer sensibly, and the percentage then tells you whether the deal works for you. It is a data-led guide to what to offer, not a RICS valuation or financial advice.

Rhys Hedges

How can you check the numbers before you make an offer?

If you are weighing up a specific property, our full buyer report costs £19.99 as a one-off. Paste a Rightmove or OnTheMarket link, or enter the address, and you get comparable sales, estimated rental value, running costs, flood and crime risk and local amenities in one place. Investors comparing several addresses may prefer the Unlimited Homebuyer Membership at £39.99 per month.

Offer Smart

The report is an evidence-based guide to what to offer. It does not replace a RICS survey, a mortgage adviser or an accountant.

FAQ

How do I figure cash on cash return?

Divide your annual pre-tax cash flow by the total cash you invested, then multiply by 100. Cash flow is rent after voids, running costs and mortgage payments. Cash invested includes your deposit, stamp duty, legal fees, refurbishment and any broker fees.

What is the difference between cash on cash return and ROI?

Cash on cash return measures one year of cash income against the cash you put in. ROI measures total profit against total investment and can include capital growth. A property can have a modest cash on cash return and a strong ROI if its value rises, or the other way round.

What is the average return on investment for property in the UK?

There is no single average for ROI, because it depends on price, rent, costs, finance and growth. The most widely reported figure is gross rental yield, which MoneyWeek put at 7.22% in Q3 2026. That is before costs and mortgage payments, so your own return will be lower.

Do I include stamp duty in the cash I invested?

Yes. SDLT is cash you paid to acquire the property, and for an additional residential property in England or Northern Ireland it usually includes the 5% surcharge. Leaving it out makes your return look better than it is.

Can you buy a house in cash in the UK?

Yes, you can buy without a mortgage. In that case your cash invested is the full price plus costs, and cash on cash return becomes close to a net yield. It will usually be lower than a mortgaged deal’s percentage in good conditions, but you have no interest payments or remortgage risk.