How To Calculate Cash-On-Cash Return

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Cash-on-cash return is a real estate term related to cap rates, but accounts for leverage when determining an investor's actual return on investment. Cash-on-cash return takes into account the fact that investors typically use part down payment and part loan in order to buy a piece of real estate. So, cash on cash return really tells us the return on investment to the investor after accounting for leverage. Let's take a look at the formulas, and then we'll work through it and see how it's related.

1. Cash-on-Cash Return = Net Cash Flow / Down Payment
2. Net Cash Flow = Net Operating Income - Debt Service
3. Down Payment = Purchase Price - Loan Amount

Cash-on-cash return, often expressed as "C/C", is simply our net cash flow after debt service divided by the down payment. We arrive at this formula by extrapolating it from another formula. So let's take a look at it. It's actually our net operating income minus our debt service, over our value, or purchase price, minus our loan amount.

Imagine here we have $80,000 of net operating income and we have $45,000 in annual debt service. That gives us $35,000 of net cash flow. If our purchase price was a million and we leveraged 750,000 of that, then our down payment would be 250,000. So our net cash flow divided by our down payment would equal approximately 14%.

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[WillBockovenCRE]

Your definitions are concise, to the point and accurate, a refreshing change from the many other channels.

[douglasmendoza]

Thanks for the response Trevor. I'm just trying to find the formula for principal amortization. Basically identifying how amortization will impact cash on cash. I know it sounds convoluted.

[jannaarmstrong]

Wow! You did a great job explaining this. You simplified this to the point I can actually understand it. Thank you!👏🏽👏🏽👏🏽

[Grant]

Nice video. Clear, concise, to the point

[RealEstateFinanceAcademy]

What lessons or concepts would you like me to teach you? Tell me below! - Trevor

[commonsense-oggz]

are you writing backwards, or did you flip the camera's image?

[douglasmendoza]

Hey Trevor, is that the same as coc with principal amortization?

[JayWayXotic]

I Love your Channel and its very educational. What explains if i have no loan and my building is worth 900, 000 and i paid 315K. I have no down payment and it brings me 5500 after everythings paid? or How would I calculate down payment. Would ijsut use what i apid for the property?

[cyberla]

Can clearly see the end calculations because there are pop ups of the next video blocking all the details!

[robertoinvests]

how do you achieve 14% cash on cash return out of thin air. In reality you should always factor in the renovation expenses into the formula just a side note…