CAP Rate Isn't ROI Isn't Cash on Cash Return

Here's Why That Matters

August 07, 2025 • Estimated Reading Time: 5 minutes

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From the Editors: Today we launch our new “Alphabet Soup” Series:

Helping Real Estate Investors get smarter one spoonful at a time.

Cash-on-Cash vs. ROI vs. Cap Rate – What’s the Difference?

Real estate is full of acronyms with numbers—but three come up more than most:

  • Cash-on-Cash Return

  • ROI

  • Cap Rate

If you've ever nodded along while secretly Googling one of those terms, you're not alone. Let’s break it down once and for all—without the spreadsheet headache.

ROI – Return on Investment

What it means: Your total profit divided by your total investment.

Think of it as: The big picture.

Includes everything: cash flow, appreciation, tax benefits, unicorn sightings—whatever makes you money over time.

✅ Best for: Flips, BRRRRs, long-term wealth.

Cash-on-Cash Return

What it means: Annual cash flow ÷ actual cash you put into the deal.

Think of it as: How hard your dollars are working this year.

It ignores appreciation and equity—just focuses on the cash you pocket vs. cash you invested.

✅ Best for: Buy-and-hold rentals, passive income plays.

Cap Rate – Capitalization Rate

What it means: Net operating income ÷ purchase price (or value).

Think of it as: How the property performs, ignoring financing.

Cap rate is a market comparison tool—not an investor return metric.

✅ Best for: Comparing properties, evaluating market conditions.

So Which One Matters Most?

It depends on what you’re doing:

  • Flipping or long-term play? ROI.

  • Rental income? Cash-on-Cash.

  • Evaluating a neighborhood or property value? Cap Rate.

Bottom Line:

They’re all useful—but only if you know what question you’re asking. Don’t confuse them. Use the right tool for the right job.

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