What is the cash-on-cash return?

The cash-on-cash return is a key performance metric in real estate investing that specifically measures the return on investment (ROI) relative to the cash that an investor has put into the investment. This metric is calculated by taking the annual pre-tax cash flow generated by the investment and dividing it by the total cash invested, which typically includes the down payment and any other immediate cash expenses involved in acquiring the property.

This measurement focuses on cash income received relative to the cash investment, which helps investors understand the actual performance of their investment in terms of liquidity and cash flow, rather than solely looking at overall property appreciation or total sales value. It provides insight into how effectively capital is utilized and can help in comparing different investment opportunities that may have various financing structures or cash flow patterns.

Other options, while related to investment metrics, do not specifically define cash-on-cash return. A ratio comparing appreciation to initial price considers property value changes over time but does not account for cash flow. The total cash flow generated by an investment gives insight into overall returns but lacks the context of cash investment. Finally, the value of an investment at the time of sale focuses on market valuation rather than cash flow and investor input, making it distinct from the cash-on-cash return