If you’re an investor, you’ve probably come across the terms cash-on-cash return, equity multiple, and return on investment. These metrics can be used to evaluate the performance of an investment.

Net operating income is the top metric to understand as a real estate investor, but other metrics can also be helpful.

Consequently, in this article, I will define these metrics and provide examples of how to use the cash-on-cash return formula to evaluate real estate investment opportunities. I will also describe their utility and limitations. 

Defining Cash on Cash (CoC)

The cash-on-cash return, sometimes abbreviated CoC, is the ratio of annual cash flow received from an investment divided by the total amount invested. The CoC return is straightforward and intuitive, even for those not deeply versed in finance or real estate. It doesn’t require a deep dive into complicated financial metrics. 

Example: Cash on Cash Return

For example, if an investor receives $5,000 in passive income this year from an investment of $100,000, their cash-on-cash return would be 5 percent.

$5,000 income / $100,000 investment = 5.00% CoC

What Does Cash on Cash Return Mean For Investors?

Cash-on-cash (CoC) return is a financial metric frequently used in real estate investing. It gives investors a snapshot of the efficiency of their cash investment in generating direct cash returns. As a result, the cash-on-cash return provides significant insights:

  1. Immediate ROI: Unlike other metrics, which include appreciation or tax implications, the CoC return focuses strictly on the annual cash income relative to the amount invested. It shows investors the percentage of their initial investment they receive back over a year purely from cash inflows.
  2. Cash Flow Analysis: CoC emphasizes cash flow, which is particularly important for real estate investors who rely on monthly rental incomes. It helps assess whether an investment will generate positive cash flow.
  3. Investment Comparison: It offers a way to compare different investment opportunities quickly. If one property offers a CoC return of 5% and another offers 8%, it’s immediately evident which property provides a higher immediate return on the cash invested, all other things being equal.
  4. Limitations and Context: However, investors should note that CoC doesn’t account for potential appreciation, tax benefits, amortization, or other factors that might influence an investment’s profitability. Using this metric with others is essential to getting a complete picture of an investment’s potential.

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What Cash On Cash Return Should You Aim For?

A 4% to 7% annual return is an excellent cash-on-cash return for direct multifamily real estate investments using a value-added or core plus strategy. 

Over the last thirty years, multifamily rental property real estate cash returns have outpaced the yields from bonds, dividend stocks, certificates of deposit, and money market funds. 

These higher yields and the stability of multifamily real estate make apartment investing popular with income-focused investors. 

It’s important to know that sponsors will publish a target cash-on-cash return when evaluating a new investment. It’s their best estimation of what their investment will produce, on average, over the lifetime of the investment. 

Once distributions from the investment begin, you can compare the actual cash-on-cash return to the projected one to see how well the property is performing. 

Defining Equity Multiple (EM)

Where the cash-on-cash return looks at a property’s annualized income, the equity multiple calculation considers the total return over its lifetime. This is important because you can make money in four ways when you invest in real estate. 

  • Cash Flow – money from rent and other rental property income after paying operating expenses and debt service
  • Appreciation – the increase in value of the property as net operating income increases
  • Tax Benefits – real estate is highly tax efficient, which maximizes one’s profits
  • Principal Paydown – the amortization of financed real estate increases one’s equity

The equity multiple considers cash flow, appreciation, and principal paydown, whereas cash-on-cash only looks at the cash flow. 

The equity multiple is calculated as the total cash distributions generated over the investment’s holding period divided by the total cash investment.

Example: Calculating EM with Cash Flow & Property Sale

Let’s look at a hypothetical investment of a property you invested $100,000 in and held for five years before selling for a profit. Your share of the total profits breaks down as follows:

  1. First Year: $4,200 distributable cash flow (4.2% CoC)
  2. Second Year: $5,100 distributable cash flow (5.1% CoC)
  3. Third Year: $5,800 distributable cash flow (5.8% CoC)
  4. Fourth Year: $6,600 distributable cash flow (6.6% CoC)
  5. Fifth Year: $7,200 distributable cash flow (7.2% CoC)

After year 5, Property Sale: 

  1. Recapture of Original Capital Investment $100,000
  2. Equity Growth from Appreciation & Principal Paydown of $60,100


  • $100,000
  •   $60,100
  •   $4,200
  •   $5,100
  •   $5,800
  •   $6,600
  •   $7,200

$189,000 total distributions

$89,000 profit

Equity Multiple = 189,000 total distribution / $100,000 investment = 1.89

The equity multiple for this property investment would be expressed as 1.89X. In this example, the investor earned 1.89 times as much as their initial investment.

An equity multiple above 1.00X represents a profitable investment. Anything below 1.00X is a loss of money.

Defining Return on Investment (ROI)

Return on investment (ROI) measures the profitability of an investment cumulatively over its lifetime. Where the cash-on-cash return is a snapshot of the annual cash flow one receives, the return on investment looks at all profits accumulated over the lifetime of an investment.

As a profitability metric, ROI is similar to the equity multiple. ROI is expressed as a percentage, whereas equity multiple is presented as a multiple. 

Return on investment is calculated as net profits divided by the cost of investment multiplied by 100 percent.

ROI = (profits/cost of investment) x 100%

In real estate, profits include the distributed cash flow plus the equity (appreciation and principal paydown) from the property sale. 

The cost of the investment is typically one’s initial capital contribution.

In the previous example, the equity multiple was 1.89X. The return on investment would be 89%. Since the property was held for five years, that’s an annualized return on investment of 17.8%.

ROI = ($89,000 profit / $100,000 invested) x 100% = 89%

Profitability & Return Metrics Recap

All three metrics measure an investment’s profitability. The higher each metric is, the more profitable the investment. 

  • Cash-on-Cash Return
  • Equity Multiple 
  • Return on Investment

You can use these metrics to evaluate the investment’s performance or to examine the target returns that the operator expects to achieve. However, it’s essential to understand that projected returns are best estimates, not guarantees.

Cash on Cash Return (CoC) Formula: 

CoC = Annual Cash Flow / Total Amount Invested

Application: It’s primarily used in real estate investments to understand the annual cash yield from rental property incomes. It doesn’t factor in property appreciation, mortgage paydown, or tax savings. 

Equity Multiple (EM) Formula:

EM = Total Lifetime Distributions / Total Amount Invested

Application: It’s commonly used in real estate to indicate the total return on investment, including cash flow and sale proceeds. An equity multiple greater than 1 indicates a gain, while less than 1 suggests a loss. For instance, an equity multiple of 2.0x means you’ll return double your initial investment, including your initial principal.

Return on Investment (ROI) Formula:

ROI = (Profits / Cost of Investment) x 100%

Application: This is a universal metric used across different investments and industries. It provides a high-level view of an investment’s profitability, but it doesn’t account for its duration.

There are several additional metrics that real estate investors use when evaluating potential investment opportunities. To learn more about the factors you should consider, check out our guide on How To Invest in Real Estate. Or take a deep dive into some of these other metrics that matter for real estate investors:

37th Parallel is a Trusted Partner for Real Estate Investing

37th Parallel Properties is a private real estate acquisition and asset management company specializing in multifamily real estate. 

We’ve been in business since 2008 and have maintained a 100% profitable track record over more than a billion dollars in transaction volume. 

We’ve made our investors money in good times and bad, in bull and bear markets, and across multiple recessions. That’s because we know what works and put our investors first. 

We Specialize in Evidence-Based Multifamily Property Investing

Just as doctors follow evidence-based medicine to do what is best for their patients, we practice evidence-based investing for the benefit of our clients. A balanced portfolio often includes stocks and bonds, but there is room for real estate. 

After all, the research is clear. Over the last twenty years, a portfolio of stocks and bonds did not perform as well as one that included real estate. And with multifamily properties being the best long-term real estate category, it’s undeniable that most people should take a long, hard look at investing in apartments. 

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