What is cash-on-cash return?

• A. Annual cash return on investment
• B. Annual internal rate of return
• C. Total cash distributed
• D. Projected net operating income

Answer: (A)

Cash-on-cash return tells you how much cash income you actually get back each year for the cash you put into the deal. It’s a simple ratio: annual cash flow to the investor (often pre-tax cash flow after debt service) divided by the initial cash invested (your equity), expressed as a percentage. This focuses on real, annual cash generation from the investment, ignoring factors like property appreciation or taxes.

That’s why describing it as the annual cash return on investment fits best. The other descriptions mix in concepts that aren’t cash-on-cash: internal rate of return (which accounts for the time value of money over the entire holding period), total cash distributed (a raw cash amount, not a return rate on invested cash), and projected net operating income (income before debt service and taxes, not the actual cash you receive).