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Cash on Cash Return
Cash on cash return is a measure of the return on an investment in real estate that is calculated by dividing the annual cash flow from the investment by the total cash invested in the property. It is a way to measure the profitability of an investment property, taking into account the income that the property generates and the expenses associated with owning and maintaining it.
To calculate the cash on cash return, you need to first determine the annual cash flow from the investment property. This is the amount of money that you receive from rent and other sources of income, minus any operating expenses such as property taxes, insurance, and maintenance.
Next, you need to divide the annual cash flow by the total cash invested in the property. This includes the down payment, closing costs, and any other cash that you put into the property.
The resulting percentage is the cash on cash return. For example, if you invested $100,000 in a property and received $10,000 in annual cash flow, your cash on cash return would be 10% (10,000 / 100,000).
Cash on cash return can be a useful measure of the profitability of an investment property, but it is important to note that it does not take into account other factors such as appreciation of the property value or the impact of leverage (borrowing money to finance the purchase of the property).
