A cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property.
It’s important because it helps property investors determine the best way to finance the purchase of investment properties for the best return on investment.
Formula to calculate cash on cash return.
Example:
Suppose an investments annual cash flow before tax was $ 100,000 and the total cash that was invested was $ 700,000. Calculate the cash on cash return of the investment.
Thus, the investments cash on cash return is 14.3%.
