How is cash-on-cash return (CoC) different from cap rate?

While the cap rate ignores financing and measures unlevered return, cash-on-cash return measures how much actual cash you receive relative to the cash you put in. It equals annual pre-tax cash flow (NOI minus debt service) divided by total cash invested. For example, if you put $100,000 down on a property and receive $8,000 in annual cash flow after paying the mortgage, your CoC return is 8%. Positive leverage occurs when your CoC return exceeds the cap rate, meaning debt is helping your returns. Most investors target a CoC return of at least 6% to 8% on rental properties.