Cash-on-Cash Return
Annual pre-tax cash flow divided by the total cash actually invested — down payment, closing costs, and upfront repairs — expressed as a percentage. Unlike cap rate, cash-on-cash accounts for financing, so it shows what the investor’s own money is earning. Two identical properties can have very different cash-on-cash returns depending on the loan.
Related terms
Cap Rate (Capitalization Rate)
A property’s net operating income divided by its price or market value, expressed as a percentage. Cap rate measures the unlevered annual return of an income property, which makes it useful for comparing deals independent of how they are financed. Typical cap rates vary widely by market and property type.
Cash Flow
The money left over after all of a property’s bills are paid from its income — operating expenses, loan payments, and reserves. Positive cash flow means the property pays for itself with margin; negative cash flow means the owner feeds it. Cash flow is the recurring return, distinct from appreciation and tax effects.
NOI (Net Operating Income)
A property’s income minus its operating expenses, calculated before loan payments, income taxes, and capital expenditures. NOI isolates how the property itself performs, independent of how it is financed or owned. It is the numerator in cap rate and DSCR, which makes it the backbone of most income-property analysis.