Cash-on-cash return is annual pre-tax cash flow divided by the equity you invested. It measures yield on your actual out-of-pocket capital, not total deal value.
Calculate cash-on-cash as: (NOI minus annual debt service) divided by (down payment plus closing costs plus capital invested). A building generating $120,000 net cash flow after debt service on $1.2 million of equity produces a 10% cash-on-cash return.
Difference from cap rate: cap rate measures return on total deal value. Cash-on-cash measures return on your actual invested capital, with leverage applied. Both matter; they answer different questions.
LA multifamily cash-on-cash returns in 2026 are typically modest — 4-7% on leveraged deals, depending on financing terms, cap rate, and operating expense structure. Higher cap rate submarkets (Valley) produce higher cash-on-cash; Westside produces lower cash-on-cash but stronger appreciation potential.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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