Real Estate Cash on Cash return question

Cash on Cash return = NOI / Cash invested Example, for a rental property, if annualized NOI is $15,000, and you invest $100,000 as down payment on a multi-unit rental property and say another $25,000 in closing costs, cash on cash return would be $15,000/$125,000 = 12%. However, at the end of the first year, the property may have appreciated $10,000 in value. You also gained equity from paying the principal component of the debt service/mortgage. You’re also allowed to reduce your tax bill (from your active day job and other businesses) by using depreciation on your rental properties. My question: cash on cash seems to ignore these other gains from a RE investment. You’ll have gained equity from having paid down the principal component of the debt service (plus any assessed value appreciation), and tax gains from depreciation write-downs. Is there a better measure of RE return that takes into account equity gains and depreciation/tax benefits? E.g. Return = [NOI + (Depreciation X Tax rate) + Equity gain + Value Appreciation)] / Cash Invested

It depends on the planned use/disposition of the RE asset, as you typically cannot rent and sell an asset at the same time. Equity multiple/refi multiple sound more appropriate for your needs. Or, IRR, which is the most common measure.

cash on cash return is not a total return metric when using it during the life of the project… it would be to assess the level of current income relative to your cash outlay. many times you wont use NOI you would use the cash you are allowed to extract from the project (after cash management arrangements with lenders etc)

as for total return, sure you could use your formula to get a wholistic return picture, but thats not what cash on cash during the life of the project. mostly returns in CRE are looked at interns of levered IRR & ROIC multiples

^This. NOI is similar to EBITDA, which we know is not a true cash number.