Cash on Cash Return
Annual pre-tax cash flow divided by the total cash you put into the deal.
Definition
Cash on cash return measures the actual yield on the capital you personally invested. Unlike cap rate, it includes the effect of leverage, so a property financed at 75 percent LTV will show a dramatically different cash on cash return than the same property purchased all cash.
The numerator is annual cash flow after debt service but before income taxes and capital improvements. The denominator is all cash you brought to the table: down payment, closing costs, rehab costs, and any initial working capital. This metric tells you how hard each dollar of your capital is working in the first year of ownership.
Because cash on cash is first-year only, it does not capture appreciation, principal paydown, tax savings, or compounding. Serious investors also track return on equity as the property matures and the equity position grows.
Formula
Example
A deal with $30,000 total cash in and $4,500 annual cash flow returns 15 percent cash on cash.
Frequently asked
What is a good cash on cash return?
Many investors target 8 to 12 percent as a minimum. BRRRR investors aim much higher because they pull most or all of their capital back out on refinance.
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