How to Calculate Cash-on-Cash Return on an Apartment Deal (and Why Numbers Differ)
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Cash-on-cash return is one year's cash flow divided by the cash invested: cash-on-cash = yearly cash flow ÷ total equity invested. For an apartment deal, cash flow is net operating income minus the loan payment and any reserve deposits, and the equity is everything investors put in: the down payment, closing costs, loan costs and the reserves funded at closing. On the example deal below, a careful calculation gives 3.81%, while a quick one that leaves out costs on both sides gives 5.07% for the same building and the same year.
This post is part of our guide to real estate syndication. It shows the calculation line by line and the shortcuts that inflate it. For how cash-on-cash relates to IRR and equity multiple, see equity multiple, IRR and cash-on-cash. Figures are as of November 2026 and the example is illustrative.
The calculation, one line at a time
A building costs $10,000,000. The loan is $6,500,000, interest-only at 6.5%. The figures are an example.
| Line | Amount |
|---|---|
| Net operating income (year 1) | $600,000 |
| Interest-only loan payment | −$422,500 |
| Replacement reserve deposits | −$25,000 |
| Cash flow available for distribution | $152,500 |
| Equity | Amount |
|---|---|
| Price less loan | $3,500,000 |
| Closing and loan costs | $300,000 |
| Reserves funded at closing | $200,000 |
| Total equity invested | $4,000,000 |
Cash-on-cash = $152,500 ÷ $4,000,000 = 3.81%.
Why do the numbers differ between presentations?
| Version | Cash flow used | Equity used | Cash-on-cash |
|---|---|---|---|
| Complete (above) | $152,500 | $4,000,000 | 3.81% |
| Reserves left out of cash flow | $177,500 | $4,000,000 | 4.44% |
| Costs left out of equity | $152,500 | $3,500,000 | 4.36% |
| Both shortcuts | $177,500 | $3,500,000 | 5.07% |
The building did not change. Only the definitions did. When you compare deals, make sure both use the complete version, or ask the sponsor for the cash flow and equity behind the percentage. Our sources and uses post shows where the full equity number comes from.
Year 1 or average?
Value-add deals often show low cash-on-cash in year 1, while units are renovated, and higher figures later. Interest-only loans do the reverse: higher early, lower when amortization starts; see interest-only periods. An "average cash-on-cash" over the hold can hide both. Ask for the figures for each year, and for what they look like if the plan runs a year late.
Deal level or investor level?
The calculation above is at the deal level. An investor's own cash-on-cash is different because:
- Fees paid from cash flow, such as an asset management fee, come out before distributions. See syndication fees.
- The waterfall decides how cash is split. Below the preferred return, investors may receive most or all of it; above it, the sponsor shares in profits. See the preferred return.
- Classes can receive different rates. See investor classes.
- Timing. Distributions are usually quarterly and may start a few months after closing, so year 1 can include fewer than four payments.
For an investor, the useful number is simple: distributions you received in the year divided by the money you invested.
What cash-on-cash does not tell you
It ignores the sale, loan paydown and the timing of money over the hold. A deal can have low cash-on-cash and a strong total return, or the reverse. It is also not the same as the cap rate, which leaves out the loan entirely; see how to calculate cap rate and negative leverage. Distributions are not guaranteed, and part of them may be a return of your own capital for tax purposes; see are distributions taxable.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units from their friends and followers. The deal page shows projected returns that DoorRaise computes from the sponsor's inputs, after DoorRaise's fees. DoorRaise forms the deal's LLC, prepares the offering documents, files Form D and verifies every investor's accreditation, in 506(b) and 506(c) deals. Investors fund by wire into escrow at Enterprise Bank & Trust, and distributions are quarterly by default. DoorRaise charges two flat fees: $1,500 to set up (non-refundable) and $5,000 a year for administration, the first year paid at closing from the money raised and only if the deal closes.
Before you invest, use the free list of questions to ask a sponsor.
FAQ
What is the formula for cash-on-cash return?
Yearly cash flow after the loan payment and reserves, divided by the total equity invested, including closing costs and reserves. $152,500 of cash flow on $4,000,000 of equity is 3.81%.
Is cash-on-cash the same as the cap rate?
No. The cap rate uses NOI before the loan, divided by the price. Cash-on-cash uses cash flow after the loan, divided by the equity.
What is a good cash-on-cash return for an apartment syndication?
There is no fixed figure; it depends on the business plan, the loan and the market. Compare deals on the same definition, year by year, and look at the total return too.
Does cash-on-cash include the sale?
No. It covers only yearly cash flow. IRR and equity multiple include the sale.
Why is my cash-on-cash lower than the projection?
Common reasons are distributions starting later than planned, higher expenses or interest costs, reserves being rebuilt, and fees or the waterfall at your level. Ask the sponsor for the reconciliation in the quarterly report.
Sources
- SEC, Investor.gov: investor bulletin on private placements under Regulation D
- IRS Publication 541, Partnerships
This article is general information, not legal, tax or investment advice. The example deal and figures are illustrative and not a projection for any deal. DoorRaise is not a lender, law firm, broker-dealer, investment adviser or funding portal.