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.
![Calculate Cash on Cash Return.](https://www.learntocalculate.com/wp-content/uploads/2020/08/cash-on-cash-retuurn-1-1024x116.png)
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.
![Calculate Cash on Cash Return.](https://www.learntocalculate.com/wp-content/uploads/2020/08/cash-on-cash-retuurn-2-1024x319.png)
Thus, the investments cash on cash return is 14.3%.