What is cash-on-cash return?
Cash-on-cash return is annual pre-tax cash flow divided by the total cash invested, expressed as a percentage.
Cash-on-cash = annual pre-tax cash flow ÷ total equity invested. If a buyer puts in $5,000,000 of equity and the property throws off $400,000 of cash flow after debt service, that is an 8% cash-on-cash return.
Unlike the cap rate, cash-on-cash reflects financing. Because it measures the return on the actual cash an investor put in, leverage and loan terms change it directly, which is why it speaks to the equity, not the property.
Why it matters
Equity investors care what the money they wire actually yields in cash. Cash-on-cash answers that in a single number, year by year.
Where it shows up in your OM
When you include financing terms, omgen presents cash-on-cash in the returns summary, derived from the figures you enter and labeled by source for you to verify before export.
Frequently asked questions
- What is the difference between cash-on-cash return and cap rate?
- Cap rate measures unlevered yield on the property's price (NOI ÷ price) and ignores financing. Cash-on-cash measures the cash return on the equity actually invested and does reflect debt, so the two diverge as leverage changes.
- What is a good cash-on-cash return?
- It varies by strategy, risk, and market conditions. Stabilized core deals target lower cash-on-cash returns; higher-risk or value-add deals aim higher. It is best judged against comparable opportunities.
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