Formula

Cap Rate vs Cash-on-Cash Return

Cap rate measures property yield before financing, while cash-on-cash return measures annual cash flow relative to cash invested. Both are useful, but neither metric should be used alone.

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Estimates are based on your inputs and assumptions. DealSharp does not provide financial, investment, legal, tax, or lending advice.

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cap rate vs cash-on-cash return

Run the number, then pressure-test the assumptions.

Cap rate measures property yield before financing, while cash-on-cash return measures annual cash flow relative to cash invested. Both are useful, but neither metric should be used alone.

Use this page to understand the metric directionally, then compare it against financing, reserves, repair risk, cash flow, and your own constraints.

Formula

Cap rate = NOI / property value. Cash-on-cash return = annual cash flow / cash invested.

Example

A property may have a 6% cap rate but a 9% cash-on-cash return if financing creates leverage and cash flow remains positive.

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DealSharp helps compare assumptions, debt service, cash flow, and risk flags so this metric is not reviewed in isolation.

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Plain-English explanation

How to read this number

The useful move is not treating one number as a final answer. Use it to decide which assumptions deserve more review, then compare the result against cash flow, financing, reserves, repair risk, and your own constraints.

Inputs required

Metric inputs shown in the formula or calculator.
Income, expense, debt, value, and cash assumptions where relevant.
Investor-provided numbers that should be checked against source documents.

Outputs explained

Scenario estimate based on the inputs.
Plain-English context for comparing the metric.
Limitations and assumptions to review before relying on the result.

Assumptions to review

Inputs are estimates supplied by the user.
Market rent, lender terms, taxes, insurance, repairs, and legal details can change the result.
DealSharp does not provide financial, investment, legal, lending, tax, or accounting advice.

What this tells you

Cap rate helps compare property income before debt.
Cash-on-cash return helps compare investor cash efficiency after financing.
Using both can show how price, NOI, loan terms, and cash invested interact.

What this does not tell you

Cap rate ignores financing, while cash-on-cash can be distorted by leverage.
Both depend on accurate income and expense assumptions.

Common mistakes

Assuming the higher metric is always better.
Comparing levered and unlevered metrics as if they mean the same thing.
Ignoring DSCR and reserves.

Questions investors ask

FAQ

Which is more important, cap rate or cash-on-cash return?

It depends on the question. Cap rate compares property income before debt; cash-on-cash focuses on your cash invested.

Can cash-on-cash be high when DSCR is weak?

Yes. Leverage can create a high cash-on-cash estimate while debt coverage remains tight.

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Run the full deal before deciding

This page helps with one metric or workflow. DealSharp is built for full real estate deal analysis: assumptions, financing, cash flow, repair scenarios, DSCR, cap rate, and risk flags based on your inputs.