Cash-on-cash return
By Jude Wallis
Cash-on-cash return is annual cash flow after operating costs and debt service, divided by the cash the buyer invested. It is a one-year cash yield on the equity cheque.
Keep reading
The numerator is leftover cash flow for the year. The denominator is down payment plus cash closing costs, minus credits. Purchase price is the wrong denominator: that one belongs to cap rate.
A smaller equity cheque can raise the percent while the building throws off the same cash, usually because more of the price was borrowed. That is a different fact from a higher cap rate.
How cash-on-cash return works is the explainer. The cash-on-cash calculator applies the quotient.