Defining Cash-on-Cash Return in Real Estate
In a recent podcast, real estate investor Spencer Gray defined cash-on-cash return as a key performance metric. He stated, “Cash-on-cash is the money you actually receive, divided by what you have left invested—after debt service, after fees. It tells you how hard your money is working, today.”
- In Chicago's multifamily market, an ideal cash-on-cash return is considered to be between 8-12%. The average capitalization rate for multifamily properties in the second quarter of 2024 was 5.9%, with rates generally ranging between 5.5% and 6.5%, a 0.75% increase from the previous year. - Key economic drivers for Chicago's real estate market include its diverse economy, a large talent pool with nearly 40% of the population over 25 holding a bachelor's degree or higher, and its role as a transportation and logistics hub. The city is home to 32 Fortune 500 headquarters and has seen almost 450 corporate expansions or relocations since 2022. - For those looking to enter the institutional investment side, firms in Chicago typically seek candidates with 1-3 years of experience in commercial real estate, finance, or accounting, with a bachelor's degree in a related field. Skills in financial modeling and analysis are crucial for these roles. - Common tax strategies for real estate investors include depreciation, where a portion of the property's value can be deducted annually over 27.5 years for residential properties. Another key strategy is the 1031 exchange, which allows investors to defer capital gains taxes by reinvesting the proceeds from a sale into a similar property. - Midwest-focused multifamily REITs like Centerspace have shown strong performance, with a 3.5% growth in same-store net operating income in 2025, driven by a 2.4% increase in revenue. Chicago-based Equity Residential (EQR) is one of the largest apartment owners in the U.S. and is a member of the S&P 500. - The Midwest real estate market is characterized by affordability and strong buyer demand, with homes selling significantly faster than the national average. In October 2025, pending home sales in the Midwest saw a 5.3% increase, outpacing other regions in the country. - Aspiring investors and professionals in the Chicago area often follow publications like *Crain's Chicago Business*, *Bisnow Chicago*, and *Midwest Real Estate News* to stay informed on market trends and investment opportunities. - Prominent real estate investment firms with a focus on the Midwest include Indianapolis-based BAM Capital, which targets Class A and B multifamily assets, and GSH Real Estate, which specializes in distressed and undervalued multifamily properties in the Midwest and Southeast.
