Cash on Cash Return
The cash on cash return is a simple ratio measurement of an investor's return in relation to the cash actually invested. The cash on cash ratio is determined by dividing the before-tax cash flow (net operating income less debt payments) and dividing it by the initial equity investment.
Example: If the net operating income for a multi-family building is $250,000, the debt service is $50,000, and the amount initially invested is $2 million, then:
(Net operating income less debt service) / initial equity investment = ($250,000 - 50,000) / $2,000,000 = 10% cash on cash return