Cash on Cash Return Definition, Formula, and Example
Cash-on-Cash Return measures the annual cash flow of an investment property as a percentage of the total cash invested. It's often used by real estate investors to evaluate the profitability of a property. This is especially interesting for investors using financing, as they could generate relatively high cash flow compared to the amount of cash they initially invested.
What is a good Cash on Cash Return in real estate?
The higher LTV (Loan to Value) ratio you have, meaning little downpayment, your cashflow will decrease.
Generally, 15% Cash-on-Cash Return is often seen as good, but it depends on the specifics of the market and your investment strategy.
For short-term rental strategy, 22% Cash-on-Cash Return are considered high.
To evaluate a Cash-on-Cash Return, you also need to consider the property's appreciation factor, risks, and opportunity cost.
Cash on Cash Return vs ROI
Cash-on-Cash Return shows the rate of return on the actual cash you invested, but ROI shows the overall rate of return on a property. ROI takes property appreciation into account as well, but CCR only considers annual cash flow.