cash-on-cash return
A real estate investment metric measuring the annual pre-tax cash flow relative to the total cash invested, showing the return on actual cash deployed.
Example
“Investing $100,000 in a rental property generating $8,000 in annual cash flow yields an 8% cash-on-cash return.”
Memory Tip
Cash-on-cash = how much CASH you get back on your invested CASH. Simple and direct.
Why It Matters
Cash-on-cash return helps real estate investors understand the actual annual income generated from their investment relative to the money they put down out of pocket. This metric is crucial for comparing different investment opportunities and determining whether a property investment makes financial sense compared to other uses of your capital.
Common Misconception
Many people confuse cash-on-cash return with overall property appreciation or total return on investment. Cash-on-cash return only measures the annual cash flow you receive relative to your initial down payment, not the property value increase or equity buildup from mortgage principal paydown over time.
In Practice
If you invest 50,000 dollars as a down payment on a rental property and that property generates 5,000 dollars in net annual cash flow after all expenses and mortgage payments, your cash-on-cash return is 10 percent per year. This helps you see that for every dollar of actual cash you invested upfront, you are earning 10 cents per year in immediate cash returns.
Etymology
CASH (money) ON (compared to) CASH (money invested). How much CASH you earn relative to the CASH you put in.
Common Misspellings
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Related Terms
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See Also
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