Why so much emphasis on Cash on Cash return?

[Nicholas Layton]

I always see people looking for a specific number for their cash on cash return. For example, Brandon likes 12% or higher, and he calculates this by taking the annual cashflow divided by the cash that is invested.

My question is, why ignore the equity that is building in the property? Doesn't that matter? You're not just making cashflow, your renters are also buying you equity that you can later access when you sell the property or do another cash out refinance.

In the 1st year alone with 5% APR on a 30-year mortgage for $100,000 you're not just getting that $2,400-ish cashflow, you're also getting $1,475 in equity, and that only increases every year. Why do I never see anyone taking this into account?

[Nick B.]

Cash flow pays bills. You can live on it if you have big enough portfolio. Equity does not pay bills unless you sell or refinance. In which case it's a one time event and no future income.

Let's suppose you have no other income. Would you rather have $100K/year cash flow and no equity growth or $100K/year equity growth and no cash flow?