Cash-on-cash return is the annual pre-tax cash flow divided by total cash invested, which shows the return on the equity actually put into a deal.
Cash-on-cash return shows what your own money is earning, which is why it changes when you use a loan. For example, $60,000 of annual cash flow after debt payments on $1,000,000 of equity invested is a 6.0% cash-on-cash return. Because it ignores appreciation, loan paydown, and tax effects, it is best used alongside cap rate and other measures. In NNN deals, leverage can raise or lower cash-on-cash return depending on whether the loan's interest rate is above or below the property's cap rate.