Understanding Cash-on-Cash Returns: A Guide for Busy Professionals Interested in Passive Real Estate Investing

If you’re a busy professional new to real estate investing, you’ve probably heard the term cash-on-cash return but might not fully understand what it means or why it matters-especially in the context of multifamily syndications and ground-up development projects like those Goodin Development specializes in.

This blog breaks down cash-on-cash returns in simple terms, explains how they work for passive investors, and clarifies how they differ from other important concepts like the preferred return.

What Is Cash-on-Cash Return?

Cash-on-cash return is a way to measure how much cash income you’re earning compared to the cash you initially invested. It’s expressed as a percentage and helps investors quickly understand the annual cash flow performance of an investment.

Simple Example of Cash-on-Cash Return

Imagine you invest $100,000 in a rental property. After all expenses (mortgage, taxes, maintenance), you receive $6,000 in cash distributions over the year.

This means you’re earning a 6% return on your invested cash annually through cash flow.

How Cash-on-Cash Return Works in Real Estate Syndications for Passive Investors

In real estate syndications, you pool your money with other investors to buy or develop properties, and the sponsor manages the project. As a passive investor, you receive annual or quarterly cash flow distributions based on the property’s net income.

Important:

The cash-on-cash return only measures the cash flow you receive during the operational phase of the property. It does not include profits you may receive when the property is sold or refinanced at the end of the investment period.

Why Cash Flow May Not Start Immediately in Ground-Up Multifamily Development

At Goodin Development, we focus on ground-up multifamily projects-meaning we build apartment communities from the ground up. During the construction phase (which typically lasts 14-24 months), there is no cash flow because the property isn’t generating rental income yet.

• No distributions during construction: Investors do not receive cash flow while the building is being developed.
• Cash flow begins after stabilization: Once construction is complete and the property is leased up and stabilized (usually 6-12 months after completion), investors start receiving cash flow distributions.
• Typical cash-on-cash returns after stabilization: Usually range between 4-6% annually for Goodin Development projects.

Realistic Example for Goodin Development Investors

• You invest $50,000 in a ground-up multifamily syndication.
• For the first 2 years (construction + lease-up), you receive no cash flow.
• Starting in year 3, the property stabilizes, and you begin receiving quarterly cash distributions.

If the project yields a 5% cash-on-cash return, your annual cash flow would be: 50,000×5%=2,500 per year or about $625 per quarter.

This cash flow is separate from any profits you receive when the property is sold or refinanced at the end of the hold period (typically 3-7 years).

What Is a Preferred Return and How Is It Different from Cash-on-Cash Return?

Preferred return (often called “pref”) is a promise by the sponsor to pay investors a minimum annual return on their invested capital before the sponsor receives any share of the profits.

• For example, a syndication might offer a 7-8% preferred return. This means investors are entitled to receive 7-8% per year on their invested capital before the sponsor earns profits.
• The preferred return is a target or hurdle rate, not guaranteed cash flow. It can be paid out from cash flow distributions or accrued and paid later from sale proceeds.
• Cash-on-cash return measures actual cash flow received in a given year, which may be lower than the preferred return during early years, especially in ground-up developments with no initial cash flow.

Key Differences:

Why Goodin Development’s Ground-Up Multifamily Projects Are a Smart Passive Investment

• No headaches: We handle everything from land acquisition, permitting, construction, to leasing and management.
• Transparency: Investors receive regular updates throughout development and operational phases.
• Aligned interests: We invest alongside you, ensuring we prioritize your returns.
• Strong long-term returns: While cash flow starts after stabilization, investors benefit from steady distributions and a share of profits at sale.

Summary: What Passive Investors Should Expect

Final Thoughts

Cash-on-cash return is a simple yet powerful metric to understand the cash income you’ll receive relative to your investment. However, in ground-up multifamily syndications like those from Goodin Development, it’s important to remember that cash flow starts only after the property is built and stabilized. Meanwhile, the preferred return sets the minimum annual return investors expect before sponsors share profits, but it is not the same as the cash-on-cash return.

By investing with Goodin Development, you gain access to professionally managed, high-quality ground-up multifamily projects designed to deliver steady passive income and long-term wealth growth.

If you want to learn more about how to evaluate passive real estate investments or explore current syndication opportunities, contact Goodin Development today.