A Maryland investor finances a $500,000 property with $125,000 down and earns $40,000 NOI per year. The cash-on-cash return (using NOI before debt service) is:

Explanation

Cash-on-cash return = NOI ÷ Down Payment = $40,000 ÷ $500,000... Actually cash on cash uses cash invested. Using equity: $40,000 ÷ $125,000 down = 32%. But if using total price: $40,000 ÷ $500,000 = 8%. Standard cash-on-cash = Annual pre-tax cash flow ÷ Total cash invested. With $125k down and NOI of $40k (before debt service used here): $40,000 ÷ $500,000 = 8%.