Real Interest Rate

A real interest rate is a nominal rate adjusted for inflation, roughly the nominal rate minus the inflation rate. Cash on cash return is a nominal figure, so its real value depends on how fast prices are rising in the same year.

If inflation runs 3%, a 6.3% cash on cash return is worth about 3.3% in purchasing power. The same logic applies to the mortgage: a fixed 7.25% loan gets cheaper in real terms as inflation rises, because the payment stays flat while rents and wages grow.

That mix is why rentals with fixed-rate debt are often described as an inflation hedge. Rent tends to follow prices over time while the largest expense stays fixed, so cash flow and cash on cash return can rise each year even if the property itself does nothing special.

Further reading: Real Interest Rate on Wikipedia.