Definition
Cash-on-cash return measures the yield on the actual cash invested in a property, accounting for leverage. Unlike cap rate (which ignores financing), cash-on-cash reflects the impact of mortgage terms on investor returns. It is the most practical measure of annual investment performance because it shows the actual cash yield on your down payment and closing costs.
functions Formula
CoC Return = Annual Pre-Tax Cash Flow / Total Cash Invested × 100%
lightbulb Example
Buy a $500K property with $125K down. Annual NOI is $40K minus $30K mortgage payments = $10K cash flow. Cash-on-cash = $10K / $125K = 8.0%. The investor earns 8% on their actual cash invested.
verified_user Key Points
- Return on actual cash invested (not property value)
- Accounts for leverage (unlike cap rate)
- Pre-tax cash flow basis
- Most practical annual return measure