Cash On Cash
Cash on cash return is a term often used in real estate investing. It is a rate or return calculated by dividing the yearly income amount by the total amount of cash invested in the property. The purpose of this calculation is to evaluate cash flow from an income-producing property. Cash on cash is expressed as a percentage and does not include appreciation or any equity build up due to the reduction of debt on the property. Cash on cash is the net amount of cash the investor will receive after all expenses on the property including debt service if any are paid. Consider an investor who purchases a $1,000,000 building with $200,000 down payment. If the cash income from rentals is $2,000 per month, the total yearly income would be $24,000. The cash on cash return would be determined by dividing the $24,000 yearly income by the $200,000 down payment invested. The calculation would result in a 12 percent cash on cash return. Keep in mind that cash on cash returns don't include other factors, like unique investor tax issues. Often, other information can influence the advisability of undertaking a particular investment. This formula ignores such important factors as underlying risks, appreciation, and depreciation of the asset. You have plenty to consider when making a real-estate investment. As you think over your next move, you'll evaluate everything from potential earnings and risk to capital gains and taxes. When it comes to comparing properties and finding the right real estate for your particular objectives, you'd probably like a resource to make your job easier. At TM 1031 Exchange, we strive to provide that resource, matching investors with suitable investment properties. Call us to learn more about the TM 1031 Exchange team at 1-877-4TM-1031. We also accept requests for information at team@tm1031exchange.com
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