Cash-on-cash return measures the annual return an investor earns relative to the actual cash they invested in a property. It is calculated by dividing annual pre-tax cash flow by total cash invested (down payment, closing costs, and renovation capital). Unlike cap rate, which ignores financing, cash-on-cash return reflects the impact of leverage. A property generating $8,000 annual cash flow on a $50,000 investment delivers a 16% cash-on-cash return. This metric is especially useful for comparing deals with different financing structures and down payment requirements.