Cash-on-Cash Return
Annual pre-tax cash flow divided by total cash invested, expressed as a percentage.
Definition
Cash-on-cash return (CoC) measures the annual cash income generated relative to the total cash invested. It's calculated as: Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100. If you invest $50,000 and earn $5,000 per year in cash flow, your CoC is 10%.
Unlike cap rate, cash-on-cash includes the effect of financing. Leverage can significantly amplify CoC — borrowing at a rate lower than the cap rate (positive leverage) boosts your return on the equity invested. This is why investors use mortgages even when they could buy cash.
Cash-on-cash is a first-year metric. It doesn't account for appreciation, equity paydown, tax benefits, or changes in rent over time. Total return analysis should incorporate all these elements, but CoC is a quick, clean way to compare levered deals and evaluate whether a property meets your return threshold.
Related Terms
Cap Rate
Capitalization rate — the ratio of a property's net operating income to its market value.
Cash Flow
The money left over each month after all property-related income and expenses are accounted for.
Leverage
Using borrowed capital (debt) to increase the potential return on an investment.
Net Operating Income (NOI)
A property's total income minus all operating expenses, before mortgage payments and taxes.
Pro Forma
A financial projection document showing expected income, expenses, and returns for an investment property.
Internal Rate of Return (IRR)
The annualized rate of return on an investment accounting for the timing and magnitude of all cash flows.
Also in "C"
Closing Costs
Fees and expenses paid at settlement when a real estate transaction is finalized.
Comparable Sales (Comps)
Recent sales of similar properties used to estimate the market value of a subject property.
Contract Assignment
Transferring the right to purchase a property from a buyer (assignor) to a third party (assignee) for a fee.