Yield measures the property. Cash-on-cash return measures your money. It answers the question that actually matters when you use a mortgage: of the cash I personally put in, how much comes back to me each year? It is one of the most useful numbers in property, and one of the least talked about.
The simple definition
Cash-on-cash return is your annual profit after the mortgage, divided by the actual cash you put into the deal. Not the property price, the cash you committed: deposit, fees, and refurbishment.
A worked example
Say you buy a property for £120,000 with a 25% deposit.
- Deposit: £30,000
- Fees and light refurbishment: £8,000
- Total cash in: £38,000
- Annual rent: £9,900
- Mortgage interest and running costs: say £6,400
- Annual profit: £3,500
- Cash-on-cash return: £3,500 ÷ £38,000 = about 9.2%
Notice what happened. The gross yield on the property was around 8%, but because you only put in part of the price and borrowed the rest, the return on your own cash is higher. That is leverage working in your favour.
Illustrative figures. Your numbers depend on the rate, the rent and the costs at the time.
When leverage works against you
Leverage cuts both ways. If the mortgage rate rises so that interest and costs climb to, say, £9,000, your annual profit shrinks to £900 and the cash-on-cash return drops to around 2.4%. Same property, same rent, very different outcome, all driven by the cost of the borrowing. This is exactly why we stress-test every deal at a higher rate than today's before we recommend it.
Why both numbers matter
Use yield to judge the property. Use cash-on-cash to judge the investment. A property with a modest yield can still be an excellent investment if it is financed well, and a high-yield property can be a poor one if the borrowing eats the profit. The investors who do best look at both, and never let a mortgage offer flatter a deal that does not stand up at a higher rate.
Common questions
What is cash-on-cash return?
It is the annual cash profit divided by the actual cash you put into a deal (deposit, fees and refurbishment), not the full property price. It tells you how hard your invested money is working.
What is a good cash-on-cash return on UK property?
It varies by strategy and area, but many investors target a high single-digit to low double-digit percentage once the property is stabilised. The figure matters less than whether it is calculated honestly, with real costs and a void allowance.
We underwrite every deal on both the property yield and the return on your cash, stress-tested for higher rates. If you want investments that work on your money, not just on paper, let us do the analysis.
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