One of the most important ways for any investor to measure the profitability of an investment property, is cash-on-cash return.
Let’s look at this deceptively simple metric, how it works, why it’s so important, and how you can start leveraging it to build greater profits in your real estate portfolio.
It is a simple calculation that tells an investor their annual return on a property relative to the amount they invested in the property during that same year.
It is one of a real estate investor’s primary tools in evaluating whether or not to invest in a property initially.
To calculate your cash-on-cash return for a property in a given year, simply divide your cash flow by your cash invested.
To put a number on it, many investors suggest that a return between 8 and 12 percent is a good target.