Platform · Glossary
Cash on cash return.
The annual pre-tax cashflow a property produces divided by the total cash the investor put in. Expressed as a percentage. Unlike the cap rate, cash on cash accounts for financing — leverage amplifies the return when the property cashflows positively and amplifies losses when it doesn’t.
Cash on cash return = Annual pre-tax cashflow ÷ Total cash invested
Cash on cash return is calculated on the cash invested at acquisition — down payment, closing costs, and make-ready cost. Annual pre-tax cashflow is effective gross income minus operating expenses minus debt service.
Cap rate vs. cash on cash
Cap rate describes the property at zero leverage; cash on cash describes the deal as financed. A 5% cap rate at 25% down with positive leverage might pencil to a 9% cash on cash. The same property bought all-cash produces a cash on cash equal to the cap rate. The gap between the two is the value — or cost — of the debt structure.
How 3Y uses it
Cash on cash return is one of three goal metrics in the 3Y analysis, alongside debt service coverage ratio and cash velocity. It’s the default. Set a target, and 3Y’s goal-convergent valuation solves for the purchase price that makes that target work given your assumptions for rent, financing, expenses, and reserves. The intake-form default is 8% — a common screening threshold for cashflowing rentals — but the right target is your target.
What it doesn't capture
Cash on cash doesn’t price in appreciation, mortgage paydown, or the eventual sale — those live in the exit projection. It’s also pre-tax, so it doesn’t reflect your personal tax situation. Use it to screen cash yield; use the full 3Y Estimate for the long-run view.
Important note.
3Y is a decision-support platform. The figures discussed on this page are illustrative and do not constitute investment, legal, tax, insurance, or appraisal advice. 3Y's estimates are not the same as an opinion of value developed by a licensed appraiser under USPAP and should not be relied upon for lending, tax, insurance, or legal purposes.