Cash-on-cash return

Define the year's cash flow and the cash invested

For a stated before-tax convention, divide the year's cash flow after included operating costs and debt payments by the cash investment used in the analysis. Identify down payment, closing costs and preparation costs, plus how reserves, capital work and later contributions are treated. State the period and avoid deducting interest twice when it is already in debt service. A financed purchase price is not all cash paid by the investor, and gross rent is not the cash-flow numerator.

Original simplified example: an owner has $50,000 of defined cash investment and $5,000 annual cash flow after the operating costs and debt service included in this example, before income tax. $5,000 ÷ $50,000 × 100 = 10%. This illustrates chosen inputs, not an expected return or recommended target. A different reserve convention, repair expense, vacancy result or cash contribution can change the result; compare the same definitions on both sides.

Cash-on-cash does not by itself capture appreciation, the timing of all future cash flows or a full sale result. CCIM's residential-analysis outline treats before-tax cash-on-cash, IRR and NPV as distinct measures. Review broader performance using the financial-statements guide. A positive cash base can produce a negative return, and division by zero is undefined. Neither a high projection nor a low percentage establishes safety, suitability or guaranteed profit.