How to Calculate Cash on Cash Return?

Let me present you with the cash on cash return formula. The above definition itself must have made it quite clear. The formula is as follows:

Cash on Cash Return = [Net Cash Inflow (Before Taxes) / Total Cash Investment] x 100

So if one has made a $160,000 investment in a property and you receive a $20,000 cash return in one year, the cash on cash return percentage would be:

Cash on Cash Return = ($20,000 / $160,000) x 100 = 12.5%

Thus, calculating the cash on cash return ratio can provide you with an idea about the profitability of your real estate investments. The higher the cash on cash return ratio, faster you will recover your initial investment in a property. Properties with a low ratio are a liability, unless their value is progressively increasing in the property market. A periodic evaluation of your investment returns is essential and constructs like cash on cash return can help you do it. Hope this article has clarified your understanding of this financial concept applied in real estate investment evaluation.