What does "cash-on-cash return" measure in real estate investing?

Cash-on-cash return is a key metric in real estate investing that specifically measures the annual return on an investment relative to the total cash invested in the property. This figure helps investors understand how well their cash investment is performing compared to the initial amount they have put into the property. It expresses the profitability of an investment based solely on the cash flow generated, allowing investors to evaluate the efficiency of their capital use.

By focusing on cash flow generated from operations—such as rental income after expenses—cash-on-cash return provides a clear picture of the actual financial return to the investor relative to the amount of money they have invested. This metric is particularly useful for investors assessing the performance of a rental property and making comparisons between potential investment opportunities.