Of all the return metrics in private real estate, cash-on-cash return is the one that most directly answers a question investors actually care about: what check am I going to receive, and how does it compare to what I put in?
It is also one of the most frequently misrepresented metrics in real estate fund marketing. This guide covers what cash-on-cash return actually measures, how to evaluate it, and what to look for in the fine print.
The Definition
Cash-on-cash return is the annual pre-tax cash income generated by an investment expressed as a percentage of the total cash invested. The formula is straightforward: annual cash flow received divided by cash invested.
Example: You invest $250,000 in a private real estate fund. Over the next 12 months, you receive $17,500 in distributions. Your cash-on-cash return is 7%.
Notice what this calculation does not include: appreciation, tax benefits, loan paydown, or any future exit proceeds. Cash-on-cash is a current income metric. It measures what the investment is paying you right now.
Why It Matters for Accredited Investors in Private Funds
Most accredited investors evaluating a private real estate fund are asking at least one of two questions: how much am I going to make over the life of the investment, and how much am I going to receive each month while I wait. IRR and MOIC answer the first question. Cash-on-cash return answers the second.
For investors who have a specific income target — covering a mortgage, funding a child's tuition, replacing a portion of a salary — the cash-on-cash return is not a secondary metric. It is the primary one. The total return story matters, but so does the check arriving on the first of the month.
What Drives Cash-on-Cash Return in a Real Estate Fund
At the property level, cash-on-cash return is driven by the spread between rental income and total operating costs, including debt service. For a medically anchored retail fund using NNN leases and fixed-rate debt, that spread has specific characteristics:
• NNN leases push operating expenses — taxes, insurance, maintenance — to tenants. This increases the net income available for distribution.
• Fixed-rate debt locks in the cost of capital. The spread between income and debt service is not exposed to rate increases.
• Healthcare tenants with long lease terms provide income duration. The distribution is not dependent on re-leasing risk in the near term.
• Contractual rent escalators — typically 1.5 to 3% annually — build in income growth that supports distribution stability over the hold period.
Gross vs. Net Cash-on-Cash Return
Always establish whether a fund is quoting gross or net cash-on-cash return. Gross figures are calculated before management fees and fund expenses. Net figures reflect what actually lands in the investor's account after those deductions.
The difference is not trivial. A fund charging a 1.5% annual management fee on a gross 8.5% distribution is delivering 7% net to the investor. A fund quoting a 7% net distribution has already accounted for those fees in the figure. Ask explicitly. The answer changes the math.
AG Capital Distribution History
The AGIF fund targets a 7% annualized distribution paid monthly. Since inception through September 2025, we have distributed at a 7.3% annualized rate net of all fees and expenses. Monthly distributions are sourced from property-level cash flows across our 34 stabilized assets and 72 active tenants.
Is Your Distribution Actually Covered?
This is the question most investors forget to ask — and it is arguably the most important one on this entire list.
A distribution is covered when the income generated by the fund's properties, minus debt service, minus operating expenses, produces enough net cash flow to fund the distribution being paid to investors. A distribution is not covered when the sponsor is making up the shortfall by pulling from new investor capital, from reserves, or from a line of credit.
The distinction matters enormously. A fund paying a 9% distribution that is not covered by property-level cash flow is not generating a 9% yield. It is returning your own capital to you — or someone else's capital to you — in the form of a monthly check. The number looks attractive. The underlying reality is that the investment is not producing what the distribution implies it is producing.
The Question to Ask, Directly
"Is the distribution covered by net operating income after debt service and fund expenses — or is any portion of the distribution being funded by new investor capital, credit facilities, or cash reserves?" A sponsor who cannot answer this question clearly, or who answers it evasively, has told you something important.
There are legitimate reasons a distribution might be temporarily supplemented during a lease-up period or following an acquisition — but those situations should be disclosed, time-limited, and tied to a specific path to full coverage. What is not legitimate is a fund paying a distribution rate it cannot sustain from actual property income and presenting it to investors as if it were a normal yield.
At Ashton Gray Capital, our distributions are funded by property-level cash flows from 34 stabilized, fully leased assets on NNN leases. The income from our tenants — after debt service on fixed-rate mortgages and after fund operating expenses — supports the distribution we pay. That is what covered means. And it is the standard every sponsor should be held to.
Cash-on-Cash Return vs. Total Return: Reading Both Together
The trap in focusing exclusively on cash-on-cash return is that it can lead you toward high-yield investments that are slowly returning your own capital. A fund paying a 10% distribution with zero appreciation and declining asset values is not a 10% return. It is a liquidation with good marketing.
Read cash-on-cash return alongside total return projections. A fund targeting 7% distributions and 16 to 17% net IRR is generating real income and real appreciation. A fund targeting 10% distributions with no credible total return story is worth examining more carefully before committing capital.
What to Ask a Fund Manager About Their Distribution
• Is the stated distribution rate gross or net of management fees and fund expenses?
• Has the fund actually paid distributions at or above the stated rate since inception, or is this a forward target?
• Are distributions covered by property-level net operating income after debt service and expenses — or is any portion funded by new investor capital, credit facilities, or cash reserves? Ask this directly and require a direct answer.
• What happens to distributions if one or more tenants stop paying rent?
• Is the distribution paid monthly, quarterly, or annually — and does the cadence match your income planning needs?
AGIF has paid consistent monthly distributions since inception. Request our distribution history from the investor relations team.
Visit ashtongraycapital.com to learn more or speak with our investor relations team.