Cash on Cash is the amount of money you receive from property cash flow as a percentage of your original investment.
As an example, let’s say you invest $100,000 into a property and it’s projected to give you 5% in Cash on Cash returns over the holding period. That may mean that you would receive $5,000 per year. You would normally see cash flow distributed monthly or quarterly.
It’s also important to note that the cash on cash return of 5% may not start off on year 1 as 5%. It may start out at 3%, then go up to 8% by year 5 and average out to 5% if divided over the holding period.
It is important to note that Cash on Cash returns are included as part of the investor IRR returns (click here to read about IRR). Meaning if a deal projects 14% IRR with a 5% Cash on Cash, that would mean the IRR is including the 5% Cash on Cash within it.
Just as with IRR, Cash on Cash is not the only measure of whether a deal is good or bad, there are other factors to consider such as the risk profile, total IRR, location, etc.
If you are interested in looking at future Real Estate investment opportunities to invest passively in deals, click the link here to schedule a call to be added to our Model Equity Investor Club where you will get private access to limited investment opportunities as they become available! We have nothing to sell you on the call, it will be completely free with the intent of answering any questions you may have.