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What is Cash-on-Cash Return?

Cash-on-Cash Return

Cash-on-Cash Return measures the annualized percentage earned on the actual cash an investor puts into a deal. It evaluates net income (after expenses) against the initial out-of-pocket investment, excluding borrowed funds. This approach highlights how effectively invested cash generates returns, ensuring clarity on tangible gains or losses per year.

Key Points

  • Focus on Cash Contribution: Ignores loan principals, purely reflecting equity outlay.
  • Annual Snapshot: Checks one year’s cash flow relative to initial capital.
  • Simple Metric: Helps compare projects with varying financing structures.
  • Dynamic: May change year to year if cash flows shift or financing terms evolve.

Ultimately, investors prefer higher Cash-on-Cash percentages, revealing profitable net inflows vs. the sums personally committed.

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