Mortgage Glossary
Cash on Cash Return
Annual pre-tax cash flow divided by total cash invested. The leveraged-return metric.
What is Cash on Cash Return?
Cash on Cash Return (CoC) measures the leveraged annual return on the actual dollars you put into a deal. Where cap rate ignores financing, Cash on Cash bakes the specific mortgage in — making it the truer measure of what your bank account will actually do once the property is yours.
Cash on Cash = Annual Pre-Tax Cash Flow ÷ Total Cash Invested
Annual pre-tax cash flow is the property’s NOI minus annual mortgage payments (principal plus interest). Total cash invested includes the down payment, closing costs, reserves required by the lender, and any out-of-pocket repair money you dropped before the property was income-producing.
Two investors buying the same building can have wildly different Cash on Cash Returns. Higher leverage means less cash in, so a property cash-flowing $200/month looks great if you only put in $30K — and underwhelming if you put in $200K. This is why Cash on Cash is the primary metric for comparing different LTV scenarios.
How Cash on Cash applies at Total Quality Lending
Total Quality Lending doesn’t use Cash on Cash to underwrite DSCR loans — we use DSCR. But investors comparing TQL DSCR financing against an all-cash purchase should absolutely run the Cash on Cash math. With 20-25% down on a TQL DSCR loan (up to 80% LTV), your cash invested drops, and a property earning even modest cash flow can produce a Cash on Cash Return that’s materially better than the all-cash version of the same deal.
The same logic applies to DSCR cash-out refinances — pulling out equity at refinance reduces your cash basis in the deal, which boosts Cash on Cash on the remaining position even if the new payment is higher.
FAQs
How is Cash on Cash Return calculated?
Cash on Cash Return = Annual Pre-Tax Cash Flow divided by Total Cash Invested. Annual pre-tax cash flow is NOI minus annual debt service. Total cash invested is your down payment plus closing costs plus reserves plus any out-of-pocket initial repairs.
What's the difference between cap rate and Cash on Cash Return?
Cap rate is unleveraged — it ignores the mortgage. Cash on Cash Return is leveraged — it factors in the specific loan terms. Two investors buying the same property can have very different Cash on Cash Returns depending on their down payment and interest rate.
Does TQL use Cash on Cash to underwrite DSCR loans?
No. TQL DSCR underwriting uses DSCR (rents divided by PITIA), not Cash on Cash. But investors should absolutely run Cash on Cash to evaluate whether a given LTV and rate combination produces the return they expect.