Cash-on-cash is a snapshot of one year’s income yield; IRR is the whole movie — every cash flow, the sale, and the timing of each dollar.
Side by side
| Cash-on-Cash | IRR | |
|---|---|---|
| Time horizon | Single year | Full hold period |
| Includes sale proceeds? | No | Yes |
| Includes timing? | No | Yes — early dollars count more |
| Complexity | One division | Iterative calculation |
| Best for | Screening income today | Comparing full deals and syndications |
Strengths of each
Cash-on-Cash — strengths
- Instant and intuitive
- Great for year-one underwriting
IRR — strengths
- Captures appreciation and exit
- The institutional standard
- Comparable across different timelines
Worked example
A rental yielding 6% cash-on-cash looks modest — but with loan paydown and a strong sale in year five, the IRR lands at 13.6%. Judging by one metric alone misprices the deal both ways.
FAQ
Why do syndications advertise IRR?
Because their returns are back-loaded into the sale; cash-on-cash would understate them. Verify assumptions behind projected IRRs.
Which number should be higher?
Neither, inherently — appreciation-heavy deals show IRR > CoC; high-yield, low-growth deals can show the reverse.