Investment Inputs

$
Total property acquisition price
%
Equity as percentage of purchase price
$
Buyer transaction costs
$
First-year net operating income
%/yr
Annual NOI growth assumption
%
Annual interest rate on loan
years
Loan amortization schedule
years
Expected investment duration
%
Cap rate applied to NOI at sale
%
Transaction costs at sale
Ryan O'Connell, CFA
Calculator by Ryan O'Connell, CFA

Investment Returns

Cash-on-Cash 5.04% Moderate
Equity Multiple 2.09x Strong
Levered IRR 17.09% Strong
Leverage Status: Negative Income Leverage Cap Rate 7.00% < Mortgage Constant 7.58%
Total Equity $1,300,000
Loan Amount $3,750,000
Annual Debt Service $284,431
Year 1 PTCF $65,569
Sale Price $5,945,050
Net Reversion $2,315,738
Going-In Cap 7.00%
Mortgage Constant 7.58%
Remaining Balance $3,510,412
Net Cash to Equity $2,714,999

Year-by-Year Cash Flow

Year NOI Debt Service PTCF

Formula Breakdown

CoC = PTCF / Equity  |  EM = Total Cash / Equity
IRR = rate where NPV of equity cash flows = 0
Model Assumptions
  • Constant NOI growth rate (no lease-level modeling)
  • Fixed-rate fully amortizing mortgage (no balloon, no interest-only period)
  • Annual cash flows received at year-end (no mid-year convention)
  • Selling costs as percentage of gross sale price
  • Pre-tax analysis only (no income tax, depreciation, or capital gains tax)
  • No capital expenditure reserves or tenant improvements
  • PTCF = NOI minus Annual Debt Service (simplified)
  • Equity multiple uses initial equity only (negative interim PTCF reduces numerator, not denominator)

For educational purposes. Not financial advice. Market conventions simplified.

Understanding CRE Investment Returns

What is Cash-on-Cash Return?

Cash-on-cash return (CoC) measures the annual pre-tax cash flow as a percentage of total equity invested. Unlike cap rate, which ignores financing, CoC reflects the actual leverage structure of the deal and the cash income an investor receives relative to their out-of-pocket investment.

Key Formulas
Cash-on-Cash = Year 1 PTCF / Total Equity
Equity Multiple = Total Cash Received / Total Equity
IRR = Rate where NPV of equity cash flows = 0

Positive vs. Negative Leverage

The leverage effect on income is determined by comparing the going-in cap rate (NOI / Price) to the mortgage constant (Annual Debt Service / Loan Amount). When cap rate exceeds the mortgage constant, leverage is positive for income. When cap rate is below the mortgage constant, leverage is negative for income, meaning debt service consumes more NOI than the property yield supports.

Key insight (Geltner Ch. 13): Even with negative income leverage, total levered returns can still exceed unlevered returns because leverage always amplifies the appreciation component. The default example shows negative income leverage yet a strong 17% levered IRR.

Equity Multiple vs. IRR

Equity multiple measures total magnitude (how much total cash you receive per dollar invested), while IRR measures annualized efficiency (accounting for the timing of cash flows). A 2.0x multiple in 3 years has a much higher IRR than 2.0x in 10 years. Professional investors evaluate both metrics together.

Practical Applications

  • Deal Screening: Compare CoC and IRR across acquisition opportunities
  • Leverage Analysis: Determine optimal debt level for target returns
  • Sensitivity Testing: Vary exit cap, growth, and hold period to stress-test returns
  • LP Reporting: Equity multiple and IRR are standard metrics for investor communications
Limitation: This calculator uses simplified annual cash flows with constant NOI growth. Professional underwriting models incorporate lease-by-lease analysis, capital expenditure reserves, tenant improvements, and tax implications.

Frequently Asked Questions

Cash-on-cash return measures the annual pre-tax cash flow as a percentage of total equity invested. It tells investors how much cash income they earn relative to their out-of-pocket investment. Unlike cap rate (which ignores financing), CoC reflects the actual leverage structure of the deal. Formula: CoC = Year 1 PTCF / Total Equity Invested. Practitioners sometimes compute CoC after reserves; this calculator uses a simplified pre-tax cash flow measure.

Equity multiple measures total return as a ratio (total cash received / equity invested), while IRR measures the annualized rate of return accounting for the timing of cash flows. A 2.0x equity multiple means you doubled your money, but doesn't say how long it took. IRR accounts for time value — a 2.0x in 3 years has a higher IRR than 2.0x in 10 years. Both metrics are important: equity multiple shows magnitude, IRR shows efficiency.

Typical CoC targets vary by property type and risk profile. Core stabilized assets often yield 4-6%, value-add deals target 8-12%, and opportunistic investments may target 12% or more. The "right" CoC depends on the investor's return requirements, alternative investment yields, and the property's risk profile. CoC below the risk-free rate may still be acceptable if the deal has strong appreciation potential.

Leverage (using debt) amplifies both returns and risk. When property returns exceed the cost of debt (positive leverage), borrowing increases equity returns. When property returns fall below debt costs (negative leverage), borrowing decreases equity returns. Per Geltner Ch. 13, the key comparison for income leverage is cap rate vs. mortgage constant (annual debt service / loan amount), not the mortgage interest rate. Leverage also shifts returns from current income toward capital appreciation.

Going-in cap rate is Year 1 NOI / Purchase Price — it measures the yield at acquisition. Exit cap rate is the rate applied to terminal NOI to estimate the sale price at disposition. If exit cap < going-in cap, the property has experienced cap rate compression (appreciation beyond NOI growth). Most pro forma models assume a slightly higher exit cap than going-in to be conservative.

Selling costs (brokerage commissions, transfer taxes, legal fees) are deducted from the gross sale price before computing net reversion. At 2% selling costs on a $5.9M sale, you lose approximately $119K. This directly reduces your equity multiple and IRR. Net Reversion = Sale Price × (1 - Selling Costs %) - Remaining Loan Balance. Higher selling costs shift the breakeven holding period longer.
Disclaimer

This calculator is for educational purposes only. It uses simplified assumptions including constant NOI growth and fully amortizing debt. Actual CRE investment decisions should incorporate lease-by-lease analysis, capital expenditure reserves, tax implications, and professional due diligence. Consult a qualified real estate professional or financial advisor for investment decisions.

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