Understanding the Difference Between Cash-on-Cash Return and IRR
Knowing the distinctions can change how you evaluate deals and build wealth.
One of the most common misconceptions I see from new investors is assuming cash-on-cash return (CoC) and internal rate of return (IRR) are interchangeable.
They’re not and understanding the difference can change how you evaluate deals and build wealth.
Example: The $200,000 Investment
Let’s say you invest $200,000 into a small multifamily property.
✅ Scenario A: You earn $20,000 annually in net cash flow.
That’s a 10 percent Cash-on-Cash Return
→ $20,000 ÷ $200,000 = 10% per year
Cash-on-Cash measures how much cash you’re earning on the cash you invested simple, clean and focused on annual income.
