Distribution Yield vs. Cash-on-Cash Return in a Syndication
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Distribution yield is the cash an investor was actually paid in a year divided by the amount they invested; cash-on-cash return, as most sponsors use it, is the deal's cash flow after debt service divided by total equity. They match only when every dollar of cash flow is distributed to investors, which rarely happens.
A worked example (hypothetical)
A deal has $5,000,000 of equity and $500,000 of cash flow after debt service in a year: a 10% deal-level cash-on-cash.
| Step | Amount |
|---|---|
| Cash flow after debt service | $500,000 |
| Added to reserves | −$80,000 |
| Asset management fee | −$70,000 |
| Distributed to investors | $350,000 |
| Distribution yield on $5,000,000 | 7% |
An investor with $100,000 receives $7,000 for the year, or $1,750 a quarter. If the sponsor also has a share above the pref, investors' share would be lower still.
How are the two compared?
| Topic | Cash-on-cash (deal level) | Distribution yield (investor level) |
|---|---|---|
| Numerator | Cash flow after debt service | Cash actually distributed |
| Denominator | Total equity raised | Your invested capital |
| Affected by reserves and fees | No | Yes |
| Shown in | Pro forma | Distribution notices |
What should an investor ask?
Ask which measure a deck shows, whether projected distributions are after fees and reserves, and whether any distribution came from a refinance or from capital rather than operations. See how to calculate cash-on-cash, where distributions come from and return of capital.
How DoorRaise fits in
On DoorRaise, sponsors raise equity for apartment buildings from their friends and followers under Rule 506(b) or 506(c), and DoorRaise verifies that every investor is accredited before they sign, in both. Investors fund by wire into the deal's escrow account at Enterprise Bank & Trust, and quarterly distributions and updates are the default. DoorRaise does not hold investor money or give investment advice.
FAQ
Is distribution yield the same as dividend yield?
Similar idea, but a REIT's dividend yield uses the share's market price; a syndication uses your invested capital.
Why are my distributions lower than the projected cash-on-cash?
Reserves, fees and the waterfall, or a business plan that holds cash back during renovations.
Is a high distribution yield always good?
Not if it is paid from reserves or capital rather than operations.
Sources
This article is general information, not legal, tax or investment advice. Every investment can lose money, and distributions are not guaranteed. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.