Cash-on-Cash Return

Understanding Cash-on-Cash Return

Cash-On-Cash return is a real estate term, related to Cap Rates, but accounts for leverage when determining an investor's actual return on investment. 

Cash-On-Cash return takes into account the fact that investors typically use part down payment and part loan in order to buy a piece of real estate.

So Cash-On-Cash return really tells us the return on investment (ROI) to the investor after accounting for leverage. 

Let's take a look at the formula, and then we'll work through it and see how it's related. 

Cash-On-Cash return, often expressed as "C / C", is simply our Net Cash Flow After Debt Service divided by the Down Payment

We arrive at this formula by extrapolating it from another formula. 

So let's take a look at it. It's actually our Net Operating Income minus our Debt Service over our value or purchase price minus our loan amount. 

So imagine here we have an $80,000 of Net Operating Income and we have $45,000, in annual Debt Service. 

That gives us $35,000 of Net Cashflow. 

If our purchase price was a million and we leveraged $750,000 of that, then our down payment would it be 250,000. So our Net Cashflow divided by our Down Payment would equal approximately 14%.