The Number One Metric Smart Investors Watch

April 03, 2025

How to Understand the Cash-on-Cash Return

Cash-on-cash return is one of the most misunderstood metrics in real estate investing. It sounds fancy, but it’s really just a simple tool to tell you: “Is this investment making my cash work hard enough?”

🧮 What Is Cash-on-Cash Return?

It’s your annual cash flow divided by your actual cash invested.

Formula:

Cash Flow ÷ Cash Invested = Cash-on-Cash Return (%)

Let’s say you put $40,000 into a deal (down payment, closing costs, and a few repairs) and you’re earning $4,000 a year in net cash flow.

👉 $4,000 ÷ $40,000 = 0.10 or 10%

That’s your cash-on-cash return.

⚠️ What It Doesn't Include:

  • Property appreciation

  • Tax benefits

  • Equity paydown

  • Your charming personality

This metric only measures cash in and cash out—today. It’s a great quick-and-dirty gauge, especially when comparing multiple deals.

🎯 Pro Tip:

Use cash-on-cash when you're financing properties. For all-cash deals, it’s basically a cap rate in disguise. And always compare it to your other opportunities—if your cash could make 12% elsewhere, why settle for 6%?

🔍 Final Thought:

Cash-on-cash return won’t tell you everything, but it will tell you whether your money is pulling its weight.

If it’s not, maybe it’s time for a better deal—or a tough-love talk with your investment dollars.

Is this startup the next billion dollar buyout?

Imagine investing in Ring before its $1.2B buyout by Amazon

Or Nest, before Google's $3.2B acquisition.

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Past performance is not indicative of future results. Email may contain forward-looking statements. See US Offering for details. Informational purposes only.