Return on Investment (ROI) Versus Cash on Cash Return (CCR)

by | BiggerPockets.com

cash on cash returnA great question came up today on the forums, inquiring what the difference was between Return on Investment (ROI) and Cash on Cash Return (CCR). I think the question was answered perfectly here, but I’ll elaborate a bit.

EXAMPLE:
Suppose you buy a house for $100,000 and sell it later for $110,000.

Your return on investment is 10%.
– The 10% is the increase that you see in your TOTAL INVESTMENT (Loan + Down Payment)

If you only put 10% ($10,000) down (we’ll ignore losing costs and commissions here) then your cash on cash return is 100%.
– The return you made on the ACTUAL CASH that you invested in the property is 100% ($10,000 increase on $10,000 cash invested).

If you paid cash in this situation, then CCR and ROI are equal.

If we use a similar example — suppose you buy a house for $100,000 and sell it later for $110,000 but this time you put 20% down on the property. Your return on investment is still 10%, but your CCR is now only 50%.

About Author

Joshua Dorkin

Joshua Dorkin is a serial entrepreneur, investor, podcaster, publisher, educator, and co-author of How to Invest in Real Estate. He started BiggerPockets to help democratize the real estate investing landscape for himself and others, aiming to make it accessible for everyone, regardless of income or education. Today, BiggerPockets is the premier real estate investing website online with over one million members and reaching over 70 million people with the message of financial freedom through real estate investing. Joshua, along with his wife and three daughters, make their home in Denver, Colorado, and spend any time they can traveling, exploring, and adventuring. Read more about Joshua’s story in 5280 and Inc.com.

10 Comments

  1. Great Post!

    It is always very important to take into consideration your ROI and CCR whenever you are working on a deal. I usually try to get 2 times my cash investment on any residential deal.

      • Sam Lenderman

        Hi Danette,

        I’m fairly new as well, but I believe what Jeff is saying is if he were to buy a house for $100,000 using a conventional loan with a 20% down payment, then his cash investment into the house is $20,000. Therefore, to get 2 times his cash investment on the deal, he would have to sell the house for $120,000.

  2. Branson Missouri properties generally display great ROI and CCR due to their potential of positive cashflow with hardly any money down. I say this as a Broker/Realtor in the area specializing in investment properties.

  3. Interesting, ROI in RE is the same as current yield or capitalization rate, which is more commonly used in re investment jargon. The other term used is OARR or Overall Annual Rate of Return. This can also be OAR.

    It’s totally different in the corporate finance world; cash on cash is ROI. ROE takes into account all tax considerations on top of the cash on cash return. You add on the dollar amount of the income that was sheltered by depreciation allowances.

  4. Raman Patel

    If you do not need money from your real estate investment by not withdrawing and reinvesting the same,
    it is just like compound interest and you can reach your goal much faster. No doubt, this requires a disciplined
    mind. This is much more rewarding with a self directed IRA investment.
    PS : I am a new member from California recently joined BiggerPockets in mid December & looking for investment in traditional as well IRA funding. I am enjoying various blogs. It is really enjoyable as well a great place for learning from various sources without spending a dime.

  5. Nicholas Zdvorak

    This is very useful and I’ll continue to define ROI and and CCR the way that you have defined above. However, it’s interesting to see the different definitions for these concepts across different sites. Investopedia’s article titled How to Calculate the ROI of Rental Property, for example, defines ROI the same way that you define CCR. On a financed deal, the gained equity + cash flow are actually divided by the money that the investor put into the deal, NOT the total investment (loan + down payment).

    It can get confusing when reading an article and not being sure how the author is actually defining these terms!

    • Cristina Uribe

      Thank you for your comment Nicholas. I’ve been struggling finding the difference in calculation for ROI and CCR when it comes to rental property. Seems that in lots of places both formulas are defined as the same but you have made a clear distinction for rental properties.

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