Cash-on-Cash Return (CoC) — also known as the Equity Dividend Rate — is the most practical year-one yield metric for leveraged real estate investors. Unlike Cap Rate (which ignores mortgage financing and assumes an all-cash purchase), Cash-on-Cash Return explicitly measures how hard your *actual out-of-pocket down payment, closing costs, and renovation cash* are working after paying the monthly mortgage.
Investors use Cash-on-Cash Return to evaluate the power of financial leverage: - When the property's unleveraged Cap Rate is *higher* than the mortgage's Loan Constant (annual debt service percentage), using a mortgage increases your Cash-on-Cash Return above the Cap Rate (Positive Leverage). - When mortgage interest rates exceed the property's Cap Rate, borrowing reduces your Cash-on-Cash Return below the Cap Rate (Negative Leverage).