What is Cash-on-Cash Return?
Отношение годового денежного потока до налогов к сумме вложенных наличных средств, показывает фактическую доходность собственного капитала инвестора.
Description
Cash-on-cash return measures the annual cash income relative to the actual cash invested. Unlike cap rate (which ignores financing), cash-on-cash return reflects the impact of debt financing on investor returns. It shows how hard your actual dollars are working.
An investor buys a JLT apartment for AED 1,000,000 with a 75% mortgage (AED 250,000 cash down, plus AED 40,000 closing costs = AED 290,000 total cash). Annual rent: AED 70,000. Expenses: AED 18,000. Mortgage payments: AED 36,000/year. Annual cash flow: AED 16,000. Cash-on-cash return: 16,000 / 290,000 = 5.5%.
Cap rate measures the property's unleveraged return (NOI/Value). Cash-on-cash measures your personal return on invested cash. With favorable debt financing, cash-on-cash can measurably exceed the cap rate.
Since Dubai has no income tax, cash-on-cash returns are calculated pre-tax and remain the actual return received. The UAE Central Bank's LTV limits (80% for expats under AED 5M) determine maximum debt financing, directly affecting achievable cash-on-cash returns.
Формула
Cash-on-Cash Return = Annual Pre-Tax Cash Flow / Total Cash Invested × 100Как Oliva это использует
Oliva calculates cash-on-cash return for each property under different financing scenarios, helping investors understand how debt financing affects their actual returns.
How to interpret
Cash-on-cash return is the metric that tells you how hard your actual out-of-pocket investment is working. Unlike cap rate, it accounts for the reality of how you financed the purchase. If your cash-on-cash return is below what you could earn in a bank deposit or government bond, you need a compelling reason, usually capital appreciation potential, to justify the additional illiquidity and complexity of property.
Cash-on-cash return can be engineered by increasing debt financing, but higher debt financing also increases risk. The most useful analysis compares cash-on-cash returns across different financing scenarios to understand the sensitivity of your return to the amount of debt you use.
Контекст рынка Дубая
Since Dubai has no income tax, cash-on-cash returns are calculated pre-tax and remain the actual return received by the investor. The UAE Central Bank's LTV limits of 80 percent for expats on properties under AED 5 million determine maximum achievable debt financing, directly affecting the cash-on-cash return that investors can target.
In Dubai's current rate environment, variable EIBOR-linked mortgages carry higher debt service than two years ago. This has reduced cash-on-cash returns for leveraged investors in communities where rents have not fully compensated for the rate increase. Investors using fixed-rate initial periods have been better protected during this adjustment.
Frequently asked questions
The ratio of annual pre-tax cash flow to the total cash invested in a property, measuring the actual cash yield on an investor's out-of-pocket investment.
The standard formula is: Cash-on-Cash Return = Annual Pre-Tax Cash Flow / Total Cash Invested × 100. Applying it consistently lets you compare projects on a like-for-like basis, which is the point of the metric.
Cash-on-cash return is the metric that tells you how hard your actual out-of-pocket investment is working. Unlike cap rate, it accounts for the reality of how you financed the purchase.
Since Dubai has no income tax, cash-on-cash returns are calculated pre-tax and remain the actual return received by the investor. The UAE Central Bank's LTV limits of 80 percent for expats on properties under AED 5 million determine maximum achievable debt financing, directly affecting the cash-on-cash return that investors can target.
Oliva calculates cash-on-cash return for each property under different financing scenarios, helping investors understand how debt financing affects their actual returns.
Since Dubai has no income tax, cash-on-cash returns are calculated pre-tax and remain the actual return received. The UAE Central Bank's LTV limits (80% for expats under AED 5M) determine maximum debt financing, directly affecting achievable cash-on-cash returns.
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This content is for educational purposes only and does not constitute investment, financial, legal, or tax advice. Yields, returns, and market data referenced are historical or estimated and are not guaranteed. Capital is at risk. Seek independent professional advice before making investment decisions. Oliva is a licensed Dubai real estate advisor (DLD Broker Card: 92025, RERA BRN: 1573501). Read our Key Risks Disclosure and Disclaimer.