digestVidSign in
summary

BiggerPockets - A WAY Better Metric than Cash on Cash Return

Thumbnail of the video “BiggerPockets - A WAY Better Metric than Cash on Cash Return”
Community upload. AI output has not been independently verified.
Author: BiggerPockets
Categories: Real Estate
Tags: real-estate
Views: 2 · Last viewed: 2026-10-16 10:58 UTC

Short Summary

Main recommendation: After purchase, stop relying on cash on cash return and track return on equity (ROE) instead, because cash on cash ignores equity you have built up that could be reinvested. Cash on cash return divides annual cash flow by cash invested at purchase, so it stays a fair measure only at the moment you buy.

Key Points

  • Cash on cash return (annual cash flow ÷ cash invested) is useful for evaluating a deal before you buy it, but it becomes misleading over time as equity builds through property appreciation and loan paydown.
  • In the example, a $5,000 annual cash flow on $50,000 invested gives a 10% cash on cash return, rising to 12% three years later on $6,000 cash flow, even though the investor's real capital is now much larger.
  • Equity at the time of the sale would be roughly $88,000 after paying off the $150,000 loan balance and 6% commissions ($15,000) on a $250,000 property value, which is the capital the investor could redeploy.
  • Measured against $88,000, the same $6,000 cash flow yields about 6.8% ROE, down from 10% at purchase, signaling the capital is working less efficiently.
  • At the original 10% rate, $88,000 should generate about $8,800 per year, so the investor forgoes roughly $2,800 annually, which is about 47% more cash flow than the $6,000 currently earned.

Details Worth Noting

  • Concrete instructions:
    • Calculate ROE as annual cash flow divided by current equity, meaning what you would walk away with after selling today (property value minus loan balance minus selling costs such as 6% commissions).
    • Compare the ROE you are earning against what your equity could earn elsewhere, such as a new property at around 10% cash on cash, to judge whether to reinvest.
    • Use a cash-out refinance to pull equity out while keeping the property: in the example, a $250,000 property with a new 20% down requirement ($50,000 kept in the deal) and a $200,000 new loan, minus the $150,000 existing balance, yields about $50,000 gross, or roughly $45,000 after closing costs, to reinvest.
    • Sell and redeploy the equity into a new property if a cash-out refinance is not preferred.
  • The example uses simplified numbers ($200,000 purchase, 20% down, $5,000 closing costs, $5,000 rehab) chosen for easy math; the speaker notes these may not reflect current market prices.
  • The speaker says a cash-out refinance realistically may need 25% down rather than 20%, which would reduce the amount pulled out.
  • The speaker frames the core investing principle as reinvesting profits as quickly as possible at the highest achievable return.

Bottom Line

Cash on cash return can hide the growing capital you could reinvest, so tracking ROE on current equity shows whether your money is still earning well after the initial purchase.