What cash-on-cash measures
Cash-on-cash is the simplest levered return: the cash left after paying the lender, divided by the equity that bought the position. $750,000 of NOI less $500,000 of debt service leaves $250,000; on $2,500,000 of equity that is a 10% cash-on-cash return for the year.
The measure is for a single period. It ignores appreciation, principal paydown, and the eventual sale, so it says how the investment pays while held rather than what it returns overall. Equity multiple and IRR capture the full picture.
How leverage changes it
When the property's unlevered yield (its cap rate on cost) exceeds the loan constant, adding debt raises cash-on-cash because borrowed money earns more than it costs. When the loan constant exceeds the yield, leverage cuts the return and can push it negative, which is the position many floating-rate borrowers found themselves in as rates rose.
Interest-only debt produces a higher cash-on-cash than an amortizing loan of the same size because no cash goes to principal, but the balance never falls. Comparing deals on cash-on-cash alone therefore favors interest-only structures that carry more refinance risk.
Limitations
Use a normalized NOI net of reserves and real management costs, and the debt service the loan actually requires. A one-year figure on a transitional property can be negative during lease-up and strongly positive after stabilization; both are true, and neither alone describes the deal.
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