Cash-on-cash return (CoC) measures the annual pre-tax cash flow you receive relative to the cash you actually invested. Unlike cap rate, it accounts for your financing — making it the most relevant number for investors who use leverage.
Where:
Purchase Price: $1,800,000
Down Payment (30%): $540,000
Closing Costs: $22,000
Renovation Reserve: $15,000
Total Cash Invested: $577,000
NOI: $126,000/year
Annual Debt Service ($1,260,000 loan at 6.75%, 25yr): $107,640
Annual Cash Flow = $126,000 − $107,640 = $18,360
Cash-on-Cash Return = ($18,360 / $577,000) × 100 = 3.18%
| Asset Class | Typical CoC Range |
|---|---|
| Multifamily (stabilized, primary market) | 3% – 6% |
| Multifamily (value-add) | 5% – 9% |
| Industrial / Net Lease | 5% – 8% |
| Retail (multi-tenant) | 5% – 9% |
| Office | 5% – 10% |
These ranges assume current (2024–2026) interest rate environments. Higher rates compress CoC returns because more income goes to debt service. When rates were near zero, CoC returns on the same properties were 2–3% higher.
The difference is financing. Cap rate measures property performance in a debt-free world — it's the same for any buyer regardless of how they finance. Cash-on-cash shows your actual yield given your specific leverage and interest rate.
Same property, different perspectives: A building with a 6.5% cap rate might produce a 4% CoC at 75% LTV and 6.5% interest — or an 8% CoC if you buy with 50% LTV at a lower rate from a portfolio lender. Cap rate stays constant; CoC changes with every financing scenario.
Cash-on-cash is a snapshot — it captures today's cash flow yield but ignores appreciation, loan paydown (principal reduction), and tax benefits (depreciation). For a complete return picture, use IRR (Internal Rate of Return) over your intended hold period, which incorporates all cash flows including the exit.
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