Cash-on-Cash

Cash-On-Cash is a term, short for cash-on-cash return on investment, that is used to describe a type of return on investment (ROI) for properties that generate lease income. In other words, the amount of net income that is received from the amount of cash that is initially invested. A Cash-On-Cash analysis is complementary to both before and after-tax ROI analyses which are based on reported profitability with non-cash considerations. Standard financial reports include periodic depreciation as an expense, for example. A Cash-On-Cash analysis typically demonstrates a cash return higher than a return calculated using the reported margin of profit. Many property investments are made anticipating a specified return on that investment at a future time of sale. A Cash-On-Cash analysis may also compliment a cash flow analysis to determine the viability of operations during the time an investor holds the investment property. The most common form of Cash-On-Cash is calculated by subtracting all cash expenses for the operation of a property, including debt service paid during the year, from the cash income for the same period, then dividing that sum by the cash invested for the purchase of the property. The result of this calculation is then multiplied by one hundred to convert the number into a percentage. As an example, if an investor spent $30,000 (in addition to a mortgage) to acquire the property and the annual cash income generated by the property minus all relevant cash expenses is $6,000, then the Cash-On-Cash return is 20%.This percentage is often used by investors to estimate and compare the cash flow of long term income-producing assets.