Cash-on-cash return
Yearly cash flow divided by the cash you put in, shown as a percentage. Answers: what am I earning on the money I actually invested? Different from cap rate because it accounts for financing.
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Part 1 of 4
Why a seller cares
Cash-on-cash is the return on the money the investor actually put in, after financing. It is why a leveraged buyer can pay more than a cash buyer for the same rental and still hit their target.
Part 2 of 4
A simple example
An investor puts $50,000 down on your $200,000 rental and clears $4,000 a year after the mortgage. That is an 8% cash-on-cash return.
| The arithmetic | The number |
|---|---|
| Cash in | $50,000 |
| Cash flow after the mortgage | $4,000 a year |
| Cash-on-cash return | 8% |
Cash-on-cash measures the return on the down payment, and the down payment is the buyer's choice.
Part 3 of 4
What people get wrong
That it is the same as cap rate. Cap rate ignores the loan; cash-on-cash is all about it.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
Your Room defines cash-on-cash return in the step you meet it in, beside the document or the date it belongs to. Free to set up, with an agent or on your own.
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