Financial
What is Cash-on-Cash Return?
The annual return on the actual cash invested in a property, calculated by dividing annual pre-tax cash flow by total cash invested.
Understanding Cash-on-Cash Return
Cash-on-cash return is a key metric for real estate investors, especially those using financing. It measures the annual return on the actual cash invested (down payment and initial costs), not the total property value.
This metric is particularly important for leveraged investments, where the investor puts down a portion of the purchase price and finances the rest. Cash-on-cash return shows the return on the investor's actual cash outlay.
For example, if an investor puts $500,000 down on a $2M property and receives $60,000 in annual cash flow, the cash-on-cash return is 12% ($60,000 ÷ $500,000).
Sage Outdoor Advisory includes cash-on-cash return analysis in our feasibility studies, helping investors understand returns on their actual cash investment.
This metric is particularly important for leveraged investments, where the investor puts down a portion of the purchase price and finances the rest. Cash-on-cash return shows the return on the investor's actual cash outlay.
For example, if an investor puts $500,000 down on a $2M property and receives $60,000 in annual cash flow, the cash-on-cash return is 12% ($60,000 ÷ $500,000).
Sage Outdoor Advisory includes cash-on-cash return analysis in our feasibility studies, helping investors understand returns on their actual cash investment.
Examples of Cash-on-Cash Return
- •An investor puts $500K down on a $2.5M glamping resort (80% LTV financing). After debt service of $120K on the $2M loan, they receive $60K in annual cash flow. Cash-on-cash return = $60K ÷ $500K = 12%. This shows their actual return on the cash invested, which is more relevant than total property ROI when using leverage. A 12% cash-on-cash return beats many alternative investments while building equity through loan paydown.
- •Comparing financing scenarios for an RV park purchase: Option A uses 70% LTV ($1.4M loan on $2M property), requires $600K down, generates $45K cash flow after debt = 7.5% cash-on-cash. Option B uses 75% LTV ($1.5M loan), requires $500K down, generates $42K cash flow = 8.4% cash-on-cash. Option B is better despite lower absolute cash flow because it requires less cash invested, demonstrating leverage's impact on returns.
- •A campground investor analyzes a potential acquisition: $800K down payment on a $3M property with $2.2M financing. After covering $175K annual debt service, remaining cash flow is $85K. Cash-on-cash return of 10.6% ($85K/$800K) helps them compare to other investment options and assess whether the leverage strategy makes sense compared to an all-cash purchase that might yield 8% total return.
Common Use Cases
- •Leveraged investment analysis
- •Financing decisions
- •Investment comparison
Related Services
Frequently Asked Questions About Cash-on-Cash Return
How is cash-on-cash return calculated?
Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested (down payment + initial costs).
What's a good cash-on-cash return?
Cash-on-cash returns vary by financing and risk. Generally, 8-15% is considered good for outdoor hospitality investments.
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