Cash-on-Cash Return (CoC)

Cash-on-cash equals annual pre-tax cash flow (NOI minus debt service) divided by total cash invested (down payment plus acquisition costs). The moment you borrow, this number diverges from cap rate. When a Japanese loan costs less than the asset's cap rate you get positive leverage and CoC rises above cap rate; when the loan costs more, CoC sinks below it, sometimes negative. With cap rates near 3 percent in central Tokyo, even a 2 percent loan can leave year-one cash flow around breakeven, with principal paydown quietly building equity. Two things wreck a foreign buyer's CoC: financing access (most big banks lend only to permanent residents, so foreigners often pay 2.5-4 percent at lower LTV) and the 20.42 percent non-resident withholding on gross rent unless you appoint a Japanese tax agent. Put the full acquisition cost in the denominator, not just the down payment.