The cash-on-cash return of an investment property is a measurement of its cash flow divided by the amount of capital you initially invested. This is usually calculated on the before tax cash flow, and is typically expressed as a percentage.
Cash-on-cash returns are most accurate when calculated on the first year’s expected cash flow. It becomes less accurate and less useful when used on future years because this calculation does not take into account the time-value of money (the principle that your money today will be worth less in the future). [Read more…]