Cap Rate vs Cash-on-Cash Return
Cap rate measures unlevered property yield based on NOI. Cash-on-cash return measures cash income relative to investor cash invested.
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Use cap rate to compare property pricing. Use cash-on-cash return to evaluate investor-level annual cash yield after financing.
Cap rate is best for asset valuation and market comparison.
Cash-on-cash return is best for equity investor distribution analysis.
A high cash-on-cash return can be driven by leverage and does not automatically mean the property is cheap.
Levered apartment acquisition
A 6% cap rate property can show a higher cash-on-cash return if debt financing reduces equity invested, but leverage also raises downside risk.
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Common Mistakes
Frequently Asked Questions
When should I use Cap Rate vs Cash-on-Cash Return?
Use cap rate to compare property pricing. Use cash-on-cash return to evaluate investor-level annual cash yield after financing.
Which calculator should I open next?
Start with Cap Rate Calculator, then use the related calculator workflow to validate the result from another angle.
Use this guide with the full Real Estate Deal Analysis Calculators
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