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Why Cash on Cash Return is Superior to Cap Rate

In a hurry:

Apply it today:

  • Cash flow collected relative to equity contributed (cash in ÷ cash out)

  • Accounts for leverage and other "below-the-line" items

By the end of this episode you’ll learn:

  • What is Cash on Cash Return?

  • How is it calculated?

  • How is it applied?

  • What relationship does it have to financing costs?


Have a few minutes:


The cap rate is a cornerstone of commercial real estate analysis. But, it isn’t without limitations.


Most investors borrow money when they purchase real estate. Measuring the return on the equity invested and determining whether there is positive or negative leverage are some of the reasons Cash on Cash Return is a preferred return metric.


In this episode we’ll learn about how it is calculated, discuss why, in certain circumstances, it is superior to cap rate and how borrowing affects this rate of return.


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