Cash-on-cash vs IRR: which one tells the truth?

Cash-on-cash: this year's return on this year's cash

Cash-on-cash (CoC) is annual cash flow divided by total cash invested at acquisition. If you put $80k into a deal and it produces $7,200/yr of cash flow, your CoC is 9%.

CoC tells you: what return am I getting on the cash sitting in this deal, right now, this year?

What it does NOT include: appreciation, principal paydown (you're building equity every month as the loan amortizes), tax benefits (depreciation alone often adds 3-7% to your real return), or any change in rent / expenses / value over time. It's a snapshot of year 1.

IRR: the time-weighted truth across the whole hold

Internal Rate of Return (IRR) is the discount rate that makes the net present value of all the deal's cash flows (initial investment, every year's operating cash flow, sale proceeds at exit) equal to zero. Said more simply: it's the time-adjusted average return you actually earned over the whole hold.

IRR captures everything CoC misses: rent growth, expense growth, principal paydown, appreciation, the eventual sale (or refi cash-out), and the time value of money. A deal with 6% year-1 CoC that compounds rent + appreciation over 7 years can easily show a 15-20% IRR.

When each one lies

CoC lies when you compare deals across different appreciation profiles. A 9% CoC in Cleveland (low appreciation) and a 6% CoC in Charlotte (high appreciation) can produce identical 10-year IRR. If you optimize only on CoC, you systematically over-invest in pure cash-flow markets and miss the deals where compounding appreciation does the heavy lifting.

IRR lies when the appreciation assumption is wrong. IRR is hyper-sensitive to your exit-year sale price. A 1% bump in annual appreciation can move IRR by 3-4 points. If your underwriting model assumes 5%/yr appreciation in a market that actually does 2%/yr, your projected IRR is fantasy. Always stress-test IRR against a flat-appreciation scenario.

Both lie whenyou don't include taxes. After-tax CoC and after-tax IRR are the real numbers — the 24-32% federal bracket plus state income tax (in non-NV/TX/FL/WA/TN states) takes a meaningful bite. Depreciation pulls some of that back; the net effect is deal-specific.

Which metric to trust on which deal

Pure cash-flow deals(Midwest workforce neighborhoods, working-class East Coast blocks): trust CoC. Appreciation is small enough that the long-term IRR isn't materially different from the year-1 CoC compounded. If the deal cash-flows now, it cash-flows long-term.

Appreciation-leaning deals(Sun Belt growth, coastal Tier-1, gentrifying inner-city): trust IRR — but only if you've stress-tested the appreciation assumption. Don't commit to a deal whose entire return story is "rent appreciates 4% and price appreciates 5% for 10 years." Both could happen. Neither is guaranteed.

BRRRR / value-add deals: neither metric handles BRRRR well in isolation. The whole point is capital recycled at refi — look at "cash recovered as % of initial investment" first, then year-1 CoC against the post-refi cash position, then long-term IRR. CoC alone misses the recycle; IRR alone smears it across the hold.

The practical workflow

On every deal: look at CoC first (is this returning enough on the cash I'm putting in right now to justify the risk?). Then look at IRR (over the realistic hold period, does this compound to something I'm happy with?). Then stress-test the IRR (does it still work if appreciation is 1pp lower than I assumed?).

If all three pass, the deal is probably good. If CoC is great but IRR collapses on stress test, you have a pure cash-flow play and should treat it that way. If IRR is great but CoC is negative, you're betting on appreciation and need a personal balance sheet that can carry negative cash flow until exit. Both are valid bets — just be clear about which one you're making.

The TrueCap analyzer shows both numbers prominently, plus the Pro 10-year projection and sensitivity grid so you can stress-test before you commit.