If you’re a rental property investor who’d like to measure the profitability of a real estate deal, you may have run into some difficulty finding a metric that best suits your needs. For instance, return on investment (ROI) measures returns as a function of appreciation or equity, which can be tricky to apply to rental properties. As a result, you should familiarize yourself with the concept of cash on cash return, otherwise known as a metric to help investors measure profitability.
What Is Cash On Cash?
Cash on cash return is one of several metrics used by real estate investors to evaluate the current or future profitability of an investment property. The calculation measures the net income produced by a property, relative to the initial cash investment that was made to purchase that same property. In other words, cash on cash return tells you how much of your out-of-pocket investment you’re earning back each year.