Cash-on-Cash Return
The annual pre-tax cash flow from a property divided by the total cash invested, expressed as a percentage. Measures the return on actual out-of-pocket investment.
Cash-on-Cash Return (CoC) measures the annual return on the actual cash an investor puts into a property. Unlike cap rate, CoC factors in financing—showing returns after debt service on your invested equity. **The Formula:** Cash-on-Cash Return = (Annual Pre-Tax Cash Flow ÷ Total Cash Invested) × 100 **Example Calculation:** Purchase Price: $2,000,000 Down Payment (25%): $500,000 Closing Costs: $50,000 **Total Cash Invested: $550,000** Annual NOI: $120,000 Annual Debt Service: $85,000 **Annual Cash Flow: $35,000** Cash-on-Cash Return = $35,000 ÷ $550,000 = 6.36% **CoC vs. Cap Rate:** | Metric | Cap Rate | Cash-on-Cash | |--------|----------|--------------| | Financing | Ignores | Includes | | Measures | Property yield | Equity yield | | Formula | NOI ÷ Price | Cash Flow ÷ Equity | | Use | Valuation | Returns analysis | **What's a Good CoC?** - Below 5%: Challenging returns unless appreciation expected - 5-8%: Typical for NNN with leverage - 8-12%: Excellent for stabilized NNN - Above 12%: Verify numbers carefully **Leverage Impact:** CoC can exceed cap rate with favorable financing: - 6% cap property with 65% LTV at 5.5% rate might yield 8%+ CoC - This is "positive leverage"—loan costs less than property yields **Limitations:** - Ignores appreciation - Ignores tax benefits - Ignores loan principal paydown - Point-in-time metric only
Frequently asked questions
What is the difference between cap rate and cash-on-cash return?
Cap rate measures property-level yield ignoring financing (NOI ÷ Price). Cash-on-cash measures returns on your actual invested equity after debt service. An all-cash buyer's CoC equals cap rate; leveraged buyers can have higher or lower CoC than cap rate depending on loan terms.
What is a good cash-on-cash return for NNN properties?
For leveraged NNN investments, 6-8% cash-on-cash is typical for investment-grade properties. Value-add or higher-risk properties may target 10%+. All-cash buyers should compare CoC (which equals cap rate) against alternative investments.
Related: cap-rate, noi, irr, debt-service-coverage-ratio