What Is Cash-on-Cash Return in Real Estate?

Cash-on-cash return (CoC return) is a real estate investment metric that measures the annual cash earnings of a property compared to the total cash you invested. It helps investors evaluate how effectively their upfront cash is generating income.

How Cash-on-Cash Return Works

Unlike metrics that consider the full property value, CoC return focuses only on actual cash invested versus cash earned each year. This makes it especially useful for investors using leverage or comparing financing strategies.

Formula:

Cash-on-Cash Return = (Annual Pre-Tax Cash Flow ÷ Total Cash Invested) × 100

  • Evaluates cash income relative to cash invested
  • Ignores appreciation and long-term sale proceeds
  • Useful for comparing financed vs. all-cash deals
  • Higher CoC usually indicates stronger cash performance

Example of Cash-on-Cash Return

An investor pays $80,000 in cash for a rental property (down payment + closing costs + renovations). After expenses, the property produces $8,000 in annual net cash flow.

CoC Return = $8,000 ÷ $80,000 = 10%

This means the investor earns a 10% return each year on the cash they invested.

Cash-on-Cash Return vs. Cap Rate vs. IRR

  • Cash-on-Cash Return – Measures annual cash income relative to actual cash invested
  • Cap Rate – Uses NOI and full property value to show current yield
  • IRR – Includes multi-year cash flow and sale proceeds for long-term forecasting

CoC return is best for evaluating short-term cash performance, while IRR is best for long-term projections and cap rate for quick yield comparisons.

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