CASH ON CASH RETURN 

Disclaimer: Any financial projections, estimates, or opinions provided are for informational purposes only. Real estate investments carry inherent risks, including but not limited to changes in market conditions, interest rates, tenant demand, financing availability, and regulatory requirements. Past performance is not a guarantee of future results

Cash-on-Cash Return

Cash-on-cash return measures the percentage return you earn on the cash you’ve actually invested—either as an estimate for future returns or as a record of what you earned in the past.

There are two main ways to calculate it:

1. Buying All-Cash (No Mortgage)
   
   

2. Buying with Financing (Mortgage / Leverage)
   
   

1. Cash-on-Cash Return (All-Cash Purchase)

Example: You buy a property for $300,000 without financing. Over the past 12 months, your Net Operating Income (NOI)—income after all expenses except debt service—was $24,000.

Calculation:

Cash on Cash Return=NOI divided by Cash Invested

$24,000/ 300,000=8%

So your all-cash investment produced an 8% annual return. This is decent, but without financing (leverage), the return is capped.

2. Cash-on-Cash Return (With Financing)

Now, imagine splitting the same $300,000 into three down payments of $100,000 each, using mortgages to cover the rest.

For each property:

• NOI = $24,000
  
  

• Interest expense = $13,500 (6% annually on a $225,000 loan)
  
  

• Profit after debt service( interest) = $10,500
  
  

Calculation per property:

$10,500/$100,000=10.5%

Since you bought 3 properties:

• Total cash invested ( simplified - excluding closing costs / repairs) = $300,000
  
  

• Total profit = 3 × $10,500 = $31,500
  
  

• Overall return = $31,500/$300,000=10.5%
  
  

👉 By using financing, you increased your total return from $24,000 (all-cash) to $31,500 with the same investment amount.

Cap Rate

Cap rate (capitalization rate) measures return based on the property’s current market value rather than your original purchase price. It assumes an all-cash purchase.

Formula:

Cap Rate=CURRENT NOI / CURRENT VALUE  

Example:

• Bought for $300,000 → 

• NOI IS $24,000 → Cap rate = 8% (24,000/300,000)
  
  

• If Value increases to $400,000 → Cap rate = $24,000 / $400,000 = 6%
  
  

Cap rate goes down as property values rise (if NOI stays the same).

Return on Equity (ROE)

ROE measures the return compared to your current equity (market value minus debt).

Example:

• Value today = $400,000
  
  

• Loan balance = $215,000
  
  

• Equity = $400,000 – $215,000 = $185,000
  
  

• Annual profit after debt payment = $10,500
  
  

ROE=$10,500/$185,000=5.58%

Notice how your original cash-on-cash return was 10.5%, but now—because equity has grown—your ROE dropped to 5.58%. This is a sign it may be time to sell and reinvest via a 1031 exchange, using your equity to buy more properties and boost returns.

✅ If you didn’t follow every step but understood most of it—you’re in good shape!

Overall rate of return- Very important thing to recognize is that often most of the income of the investment comes from the capital gains and not the cash flow so If you want to calculate how much is or how much you ANTICIPATE your total return combining the resale price PLUS the cash flow you received - The formula is as such: TOTAL CASH FLOW RECEIVED+ CAPITAL GAIN PROFIT+AMOUNT OF PRINCIPAL OF THE MORTGAGE YOU PAID OFF (if there is a mortgage) /CASH INVESTMENT INITIALLY. Example: if you had a total cash flow of $12,500 and during the 18 months of ownership you paid down the principal by $2,000+ You sold it for a capital gain profit of $55,000 and your initial cash investment was $50,000- the calculation will be 12,500+2000+55,000/50000=69,500/50,000= 1.39 return which means 139% of GREAT return for 18 months of ownership. If you want to know how much is the monthly rate of return you take the 139%/18 months=7.72% for each month and if you want to know the annual rate of return it would be %7.72*12=92.64%!