Investment Math
Cash-on-Cash Return: Real Estate Investment Math
Cash-on-cash return measures the annual cash flow generated by a property as a percentage of the cash actually invested. CoC = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100. Unlike cap rate, it accounts for financing — making it more relevant to leveraged investors.
The Formula
Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100.
Annual Pre-Tax Cash Flow = NOI − Annual Debt Service. Total Cash Invested = Down Payment + Closing Costs + Initial Improvements.
Two Worked Examples
Question 1
Property NOI: $50,000. Annual debt service (PI): $35,000. Down payment + closing costs: $100,000. What's the cash-on-cash return?
Cash flow: $50,000 − $35,000 = $15,000. CoC: $15,000 ÷ $100,000 × 100 = 15%.
Question 2
Investor wants 12% CoC. Property generates $30,000 NOI and $25,000 in debt service. What's the maximum cash investment?
Cash flow: $30,000 − $25,000 = $5,000. Max cash invested: $5,000 ÷ 0.12 = $41,667.
Cash-on-Cash vs. Cap Rate
Cap rate ignores financing; CoC includes financing
Cap rate uses NOI; CoC uses NOI minus debt service (cash flow)
Cap rate compares property-level returns; CoC measures investor's actual returns
Higher leverage typically increases CoC if NOI exceeds debt service
Both metrics matter — cap rate for property comparison, CoC for investor returns
Practice Investment Math
Drill CoC, cap rate, and GRM problems together.
Related Investment Math
Cash-on-Cash FAQ
What's a 'good' cash-on-cash return?
Depends on the market and investor goals. 8–12% is common for residential rentals; commercial may be lower in premium markets.
Does CoC include appreciation?
No. CoC measures only annual cash flow as a percentage of cash invested. Total return includes CoC plus appreciation plus principal paydown plus tax benefits.
Why does CoC matter more than cap rate to leveraged investors?
Because cap rate ignores debt. An investor who finances 75% of a property cares about returns on the 25% they put in cash — that's what CoC measures.