Cash-on-Cash Return

In depth

Cash-on-cash return measures the return on actual cash committed to a deal, including down payment, closing costs, and rehab. Annual pre-tax cash flow (rents minus operating expenses minus debt service) is divided by total cash invested. Misconception: cash-on-cash return is not the same as cap rate; it factors in financing leverage, often producing much higher numbers when leverage is favorable. Practically, in seller-financed investment property deals, buyers achieve strong cash-on-cash returns because seller financing provides leverage with flexible terms. A 10 percent cash-on-cash on a leveraged property might compare favorably to an unleveraged 7 percent cap rate. Cash-on-cash ignores principal paydown and appreciation, so investors should also consider total return and equity multiple over the holding period.