Cash & working capital
Cash-on-Cash Return
Formula reviewed by Tahir Asif, CMA
The annual pre-tax cash flow from an investment property divided by the total cash the investor put into it.
Cash-on-cash return measures the yield on the money you actually invested. The numerator is annual pre-tax cash flow, meaning net operating income minus debt service. The denominator is total cash invested: the down payment, points, closing costs, rehab and any reserves funded at closing, less any cash returned at a refinance.
Because it counts debt service, it is a levered measure, unlike the cap rate. It ignores principal paydown, appreciation, taxes and how long the property is held, so it is a yield and not a total return.
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