Two metrics do most of the heavy lifting when investors size up a rental property. They measure different things, and you want both.
Cap rate: unleveraged yield
The capitalization rate is a property's net operating income divided by its price. It tells you the return the property would produce if you paid all cash — a clean way to compare properties independent of financing.
Cash-on-cash: your actual return
Cash-on-cash return divides the annual pre-tax cash flow by the actual cash you invested, including the down payment and costs. Because it accounts for leverage, it reflects what your real dollars are earning.
Read them together
A property can show a modest cap rate but a strong cash-on-cash return once financing is factored in — or the reverse. Looking at both, alongside DSCR, gives a fuller picture before you commit.
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