Investment & Underwriting
Cash-on-Cash Return
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Also called: cash on cash · coc return
Cash-on-cash return isolates the return on the equity a buyer actually puts in, which is why it moves with financing terms even when the underlying property and NOI are unchanged — the same asset can show a materially different cash-on-cash return at 65% leverage versus 50% leverage, or at a 6% versus 8% interest rate.
It is the metric most relevant to a leveraged buyer's go/no-go decision, but it should be read alongside cap rate and DSCR rather than alone: a high cash-on-cash return achieved through aggressive leverage can mask thin debt-service coverage, which is exactly the combination that turns a manageable vacancy into a default.
Because most conventional lenders will not finance cannabis real estate, cash-on-cash comparisons across a cannabis buyer's portfolio often require modeling private or cannabis-specific debt terms (higher rate, lower leverage, shorter amortization) rather than assuming conventional bank terms.
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Terms that travel with this one
- Cap RateCapitalization rate — a property's net operating income divided by its purchase price or value, used as the primary shorthand for pricing and comparing income-producing real estate.
- DSCRDebt Service Coverage Ratio — a property's net operating income divided by its annual debt service, used by lenders to measure how much cushion exists before income falls short of loan payments.
- NOINet Operating Income — a property's total operating revenue minus operating expenses, before debt service, capital expenditures, and income taxes, used as the standard basis for valuing income property.
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