What Is Cash-on-Cash Return?
Cashoncash return (CoC) measures the annual cash income generated by a property relative to the equity invested. Formula: CoC = Annual CFBT ÷ Total Equity Invested If you invested $500,000 in equity (down payment + closing costs) and the property generates $40,000 in annual CFBT, your cashoncash return is 8%.
Cash-on-cash return (CoC) measures the annual cash income generated by a property relative to the equity invested.
Formula: CoC = Annual CFBT ÷ Total Equity Invested
If you invested $500,000 in equity (down payment + closing costs) and the property generates $40,000 in annual CFBT, your cash-on-cash return is 8%.
CoC is a current-yield metric — it measures what you’re earning right now, this year, on your invested dollars. It doesn’t account for future rent growth, appreciation, or the eventual equity payoff when you sell. It’s the CRE equivalent of the dividend yield on a stock.
Target CoC benchmarks vary by investor type and market:
- Core investors (low risk, gateway markets): 4–6% CoC
- Core-plus investors: 5–7%
- Value-add investors: 6–9% going-in CoC, higher on stabilized basis
- Opportunistic deals: sometimes negative CoC early; investors seek total return
Why does CoC matter if it’s just one year? Because it validates the deal makes sense as an income investment before you factor in speculative appreciation. If you’re underwriting a deal assuming 3% annual rent growth and 5% appreciation but the going-in CoC is 2%, you’re betting on the future. If that future doesn’t arrive, you have a negative-carry investment. Smart investors require a reasonable CoC threshold before they’ll rely on appreciation assumptions.
Learn this properly
Cash-on-Cash Return is one of the core numbers in commercial real estate. The Language of CRE course teaches it alongside every other metric you need to read a deal, with worked examples and practice questions.
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Common questions
What is Cash-on-Cash Return?
Cashoncash return (CoC) measures the annual cash income generated by a property relative to the equity invested. Formula: CoC = Annual CFBT ÷ Total Equity Invested If you invested $500,000 in equity (down payment + closing costs) and the property generates $40,000 in annual CFBT, your cashoncash return is 8%.
Why does Cash-on-Cash Return matter in a commercial real estate deal?
CoC is a currentyield metric — it measures what you’re earning right now, this year, on your invested dollars. It doesn’t account for future rent growth, appreciation, or the eventual equity payoff when you sell.
Related terms
[Debt Service Coverage Ratio (DSCR)](/debt-service-coverage-ratio/) · [Effective Gross Income (EGI)](/effective-gross-income/)
Educational definition only. Not investment, financial, or brokerage advice.