CASH-ON-CASH RETURN
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A real estate metric measuring annual pre‑tax cash flow as a percentage of the cash invested.
Summary
Cash-on-Cash Return is a straightforward profitability metric used in real estate investing that shows how much annual cash flow you receive relative to the actual cash you put into the investment. Think of it as measuring your 'bang for your buck' - if you put $50,000 cash down on a rental property and it generates $4,000 in annual cash flow after expenses, your cash-on-cash return is 8%. This metric helps investors compare different investment opportunities and determine if their cash is working hard enough for them.
Usage Context
Essential when analyzing rental property investments, comparing multiple investment opportunities, determining optimal financing strategies, and evaluating whether to use cash or leverage in real estate deals.
Common Confusions
- Confusing it with cap rate, which uses property value instead of cash invested
- Including mortgage principal paydown in the cash flow calculation
- Using after-tax instead of pre-tax cash flow
- Mixing up gross rental income with net cash flow
- Thinking it accounts for property appreciation or tax benefits
