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.

Cash-on-Cash Return vs. Cap Rate: When They Disagree

Cap rate and cash-on-cash return both claim to measure a property’s return, and they often land on different numbers. The difference is leverage. Cap Rate = NOI ÷ Purchase Price ignores financing entirely; it tells you what the property itself yields if you paid all cash. Cash-on-Cash Return = Annual CFBT ÷ Total Equity Invested factors in the loan; it tells you what your invested dollars earn once debt service comes out.

Here’s where they split. A $2,000,000 property with $120,000 NOI has a 6.0% cap rate, full stop, no matter how you finance it. Finance it at 70% LTV with annual debt service of $102,000, and CFBT is $120,000 minus $102,000, or $18,000. Equity invested is the $600,000 down payment. Cash-on-cash return is $18,000 ÷ $600,000, or 3.0%. Same property, same NOI, and the two metrics land half a point apart from each other’s expectations. Run the same deal with a cheaper loan, say $70,000 in annual debt service instead of $102,000, and cash-on-cash return jumps past the cap rate to 8.3%. That’s positive leverage: the loan costs less than the property yields, and every dollar of debt adds to the equity return instead of dragging on it.

Use cap rate to compare properties or markets on equal footing, before financing terms exist or when you need a number a lender or appraiser will recognize. Use cash-on-cash return once you have a real loan quote, because it answers the question that matters most to an equity investor: what your money earns this year. Cap rate prices the asset. Cash-on-cash return prices your position in it.

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.

Start with The Language of CRE ($49) · Open the CRE calculators

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) · Effective Gross Income (EGI)

Educational definition only. Not investment, financial, or brokerage advice.