Cash-on-Cash Return
Financial term in the Real Estate category
Definition
A measure of annual pre-tax cash flow relative to the total cash invested in a property. Unlike cap rate, it accounts for financing. If you invest $50,000 and receive $5,000 in annual cash flow, the cash-on-cash return is 10%.
Related Terms
Cap Rate
Capitalization rate measures a rental property's potential return, calculated by dividing net operating income by the property's market value. A property generating $12,000 annually valued at $200,000 has a 6% cap rate. Used to compare investment properties.
Rental Income
Money received from tenants for the use of real estate property. Rental income is considered taxable but can be offset by deductions including mortgage interest, property taxes, insurance, maintenance, and depreciation.
Frequently Asked Questions
What is Cash-on-Cash Return?
A measure of annual pre-tax cash flow relative to the total cash invested in a property. Unlike cap rate, it accounts for financing. If you invest $50,000 and receive $5,000 in annual cash flow, the cash-on-cash return is 10%.
Why is Cash-on-Cash Return important in personal finance?
Cash-on-Cash Return is an important real estate concept that helps individuals make better financial decisions. Understanding Cash-on-Cash Return can improve your financial planning and help you achieve your money goals.
How does Cash-on-Cash Return relate to Cap Rate?
Cash-on-Cash Return and Cap Rate are related financial concepts. Capitalization rate measures a rental property's potential return, calculated by dividing net operating income by the property's market value. A property generating $12,000 annually valued at $200,000 has a 6% cap rate. Used to compare investment properties.
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