what is cash on cash return 
a cash on cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property put simply cash on cash return measures the annual return the investor made on the property in relation to the amount of mortgage paid during the same year it is considered relatively easy to understand and one of the most important real estate roi calculations investopedia matthew collinsunderstanding cash on cash returna cash on cash return is a metric normally used to measure commercial real estate investment performance it is sometimes referred to as the cash yield on a property investment the cash on cash return rate provides business owners and investors with an analysis of the business plan for a property and the potential cash distributions over the life of the investment cash on cash return analysis is often used for investment properties that involve long term debt borrowing when debt is included in a real estate transaction as is the case with most commercial properties the actual cash return on the investment differs from the standard return on investment roi calculations based on standard roi take into account the total return on an investment cash on cash return on the other hand only measures the return on the actual cash invested providing a more accurate analysis of the investment s performance the formula for cash on cash is cash on cash return annual pre tax cash flow total cash invested where aptcf gsr oi v oe amp gsr gross scheduled rent oi other income v vacancy oe operating expenses amp annual mortgage payments begin aligned text cash on cash return frac text annual pre tax cash flow text total cash invested textbf where text aptcf gsr oi v oe amp text gsr gross scheduled rent text oi other income text v vacancy text oe operating expenses text amp annual mortgage payments end aligned cash on cash return total cash investedannual pre tax cash flow where aptcf gsr oi v oe amp gsr gross scheduled rentoi other incomev vacancyoe operating expensesamp annual mortgage payments cash on cash return examplecash on cash returns use an investment property s pre tax cash inflows received by the investor and the pre tax outflows paid by the investor for example suppose a commercial real estate investor invests in a piece of property that does not produce monthly income the total purchase price of the property is 1 million the investor pays 100 000 cash as a down payment and borrows 900 000 from a bank due are closing fees insurance premiums and maintenance costs of 10 000 which the investor also pays out of pocket after one year the investor has paid 25 000 in loan payments of which 5 000 is a principal repayment the investor decides to sell the property for 1 1 million after one year this means the investor s total cash outflow is 135 000 and after the debt of 895 000 is repaid he is left with a cash inflow of 205 000 the investor s cash on cash return is then 205 000 135 000 135 000 51 9 in addition to deriving the current return the cash on cash return can also be used to forecast the expected future cash distributions of an investment however unlike a monthly coupon payment distribution it is not a promised return but is instead a target used to assess a potential investment in this way the cash on cash return is an estimate of what an investor may receive over the life of the investment 