A cash-on-cash return is frequently used in real estate dealings. Cash-on-cash return is the rate of return used in real estate transactions to evaluate the cash income that is earned on the total cash invested on the property. The cash-on-cash return unit calculates the return for the ongoing period, (generally one year), instead of the life span of the property.
This return also predicts estimated earnings and expenditures.
The formula used to determine cash-on-cash return is: –
Cash-on-cash Return = (Annual Pre-Tax Cash Flow)/Total cash invested
APTCF = (GSR + OI) – (V+OE+AMP)
GSR = Gross Scheduled Rate
OI = Other investments
V = Vacancies
OE = Other expenses
AMP = Annual mortgage payments
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