Market Value

Market value is the likeliest sale price in an open market, assuming buyer and seller both know the property and neither is forced to act. Cash on cash return is based on what you paid and invested, not on market value, so the two drift apart as the property changes in value.

Suppose the default property is worth $600,000 five years after purchase. Cash on cash still divides cash flow by the original $150,000. Measured against the equity you could pull out today, the return is lower, because more money is sitting in the building than you first put in.

That comparison is the signal many investors use to sell or refinance. When cash flow over current equity falls well below what the equity could earn elsewhere, the property is holding too much idle capital. The return on equity figure captures that shift.

Further reading: Market Value on Wikipedia.