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    Cash on Cash Return

    Annual pre tax cash flow divided by the cash invested, measuring the yield on your equity.

    Cash on cash return measures the annual pre tax cash flow a property produces against the actual cash an investor put in. Unlike cap rate, which ignores financing, cash on cash reflects the loan, so it shows the real yield on your equity after debt service.

    The cash invested includes the down payment, closing costs, and any upfront capital improvements. The cash flow is what remains after operating expenses and debt service. Leverage magnifies the result: cheap debt can lift cash on cash well above the cap rate, while expensive debt can drag it below.

    Cash on cash is a single year snapshot and does not account for appreciation, principal paydown, or the eventual sale. Investors pair it with total return measures like internal rate of return to judge a deal over its full hold.

    Formula
    Cash on Cash Return = Annual Pre Tax Cash Flow / Total Cash Invested
    Worked Example

    An investor puts $500,000 into a deal and nets $45,000 in annual cash flow after debt service. Cash on cash return = 45,000 / 500,000 = 9%.

    Why It Matters

    Cash on cash tells you what your money earns each year in the deal. It captures the effect of financing, so it is a practical gauge of whether a leveraged purchase actually pays you well.

    Related Terms

    Capitalization Rate (Cap Rate)

    The ratio of net operating income to property value, used to gauge return and estimate what a property is worth.

    Net Operating Income (NOI)

    A property's income after operating expenses but before debt service, income taxes, and capital costs.

    Interest Only Period

    A stretch at the start of a loan when payments cover only interest, not principal.

    Debt Service Coverage Ratio (DSCR)

    The ratio of a property's net operating income to its annual debt service, showing how comfortably income covers loan payments.

    Related Programs & Tools

    Return CalculatorDSCR LoansMultifamily Financing

    Looking for another term? Browse the full commercial lending glossary.

    Frequently Asked Questions

    Cap rate ignores financing and measures the all cash return. Cash on cash accounts for the loan, so it shows the yield on the actual equity you invested.

    It varies by deal and market, and it depends on your goals. Investors weigh it against risk, the cap rate, and the total return including appreciation and paydown.

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