Which of the following scenarios would result in the highest cash-on-cash return?

The scenario involving a fully rented property with no debt would generate the highest cash-on-cash return because cash-on-cash return measures the annual pre-tax cash flow generated by an investment relative to the amount of cash initially invested.

In the case of a fully rented property, the cash inflows from rent will consist of consistent and reliable cash flow. Without any debt obligations, all rental income contributes directly to the cash flow, resulting in a high cash-on-cash return. This scenario maximizes the income while minimizing expenditures, as there are no mortgage payments or financing costs that would typically reduce the cash flow available to the investor.

In contrast, a property requiring extensive renovations could lead to significant initial investment costs and reduce cash flow until the property is rented out and generating income. A property with high ongoing maintenance costs would diminish cash flow due to the ongoing expenses, and a vacant property would generate no income at all, leading to a low or negative cash-on-cash return. Thus, a fully rented property presents the most favorable circumstances for achieving a high cash-on-cash return.