The cash-on-cash return is a real estate investment metric that measures the received pre-tax cash flow relative to the amount of money that was invested to acquire the asset!
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VIDEO TRANSCRIPTION
Meet Lola, Lola has been looking forward to investing in real estate to grow her wealth before investing.
Lola wants to be fully educated on the various types of real estate metrics that she can use to analyze deals.
Lola wants to learn what cash on cash return is and why it’s an important metric.
Lola is told by her mentor Dan that cash on cash return is a percentage rate that measures the cash flow from a property relative to the amount of money that an investor has put forth to acquire the asset.
Lola asks how she can calculate her cash on cash return.
Dan explains that cash on cash return is calculated by her property’s net cash flow divided by her initial down payment for example if Lola buys a multi-family property with a $200,000 downpayment and is receiving a yearly cash flow of $40,000.
Lola’s cash on cash return would be $40,000 divided by her down payment of $200,000 giving her a 20 percent cash on cash return from her property Dan explains that cash on cash return is an important metric because it shows investors how well their money is working for them.
Lola is excited to use this metric to better analyze potential deals and get started investing in multifamily properties.