Cash-on-cash return measures the annual cash flow from a rental property against the capital you actually invested. In Portugal, this matters because acquisition costs, IMT, stamp duty, repairs, and financing can turn a decent gross yield into a weak investor return.

Key takeaway: Cash-on-cash = annual pre-tax cash flow / total capital invested. It is the investor's return, not the property's unlevered return.

What is cash-on-cash return?

In 2026, Global Property Guide reports Portugal's average gross rental yield at 4.29%. That figure is before taxes, repair costs, and other costs. Cash-on-cash goes further by asking what is left after the mortgage and how that compares with your deployed capital.

Cash-on-cash formula

Cash-on-cash = Annual cash flow / Capital invested × 100 Capital invested includes down payment, IMT, stamp duty, notary, legal fees, and initial renovation or furnishing.

Portugal worked example

InputValue
Purchase price€220,000
Down payment and acquisition costs€68,500
Initial works and furnishing€8,500
Total capital invested€77,000
NOI€10,900
Annual mortgage payments€8,640
Annual cash flow€2,260
€2,260 / €77,000 = 2.94% The property is positive, but the return on deployed capital is modest.

This is where investors often discover that the deal was not as strong as the portal headline suggested. The rent may cover the loan, but the amount of capital locked into the transaction still needs to earn an acceptable return.

What is a good cash-on-cash return?

In 2026, with the ECB deposit facility rate at 2.25%, property should pay a clear risk premium over simpler cash-like alternatives. For long-term rental property, below 3% is thin unless capital appreciation is the main thesis.

< 3%Weak income returnUsually appreciation-led
3–5%AcceptableDepends on location quality
5–8%StrongGood mix of return and risk
> 8%ExcellentValidate rent and vacancy carefully

Model the full deal: use the acquisition cost calculator first, then calculate NOI, cap rate, DSCR, and cash-on-cash in the rental property calculator.

Sources

  • Global Property Guide, Portugal Rental Yields, retrieved 2026-06-19, https://www.globalpropertyguide.com/europe/portugal/rental-yields
  • European Central Bank, Key ECB Interest Rates, retrieved 2026-06-19, https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html