Cash on cash return is a rate of return commonly used in multifamily and commercial real estate finance. It is calculated by looking at the amount of cash you invested compared to the amount of income you received over a specific time period, generally one year.

Simply, cash on cash return is calculated by dividing annual income by total investment. Cash on cash return is also called the equity dividend rate in certain cases. This is one of the most common return systems that can be found in the real estate industry. Referring to the example mentioned above, you can see it is a ratio, which is converted in to a percentage.

To calculate the cash on cash return, an investor first determines the net income from a specific property for the year. They can do this by determining the gross income the property generated and then subtracting any operating costs (and in the event there is a commercial mortgage, debt service as well). Then, they should divide the net income by the total cash spent for the property. The resulting figure, once converted to a percentage, is the cash on cash return.

Cash on cash return can be calculated by using the following formula:

Cash on Cash Return= Annual Dollar Income / Total Dollars Invested

Cash on cash returns in commercial real estate are most impacted by leverage, since leverage determines the amount of cash required to enter into a commercial real estate investment (higher leverage = you can buy more with less money). Other factors that can affect cash on cash returns include the gross income the property generates, operating costs, debt service, and closing costs.

Cash on cash return is calculated by dividing annual income by total investment. It is also called the equity dividend rate in certain cases. To calculate the cash on cash return, an investor first determines the net income from a specific property for the year. They can do this by determining the gross income the property generated and then subtracting any operating costs (and in the event there is a commercial mortgage, debt service as well). Then, they should divide the net income by the total cash spent for the property. The resulting figure, once converted to a percentage, is the cash on cash return.

Cash on cash return can be calculated by using the following formula:

Cash on Cash Return= Annual Dollar Income / Total Dollars Invested

A good cash on cash return for commercial real estate investments depends on the individual investor's goals and risk tolerance. Generally, a cash on cash return of 8-12% is considered a good return for a commercial real estate investment. However, some investors may be willing to accept a lower return if the investment is seen as low risk or if the investor is looking for a steady income stream. Additionally, some investors may be willing to accept a higher return if the investment is seen as higher risk or if the investor is looking for a higher return on their investment.

The benefits of investing in commercial real estate with a high cash on cash return include higher returns on investment, lower risk, and more flexibility in financing options. A high cash on cash return indicates that the property is generating more income than the amount of money invested in it. This means that the investor is able to make more money from the investment than they would with a lower cash on cash return. Additionally, a high cash on cash return indicates that the property is generating more income than the amount of money invested in it, which reduces the risk of the investment. Finally, a high cash on cash return allows for more flexibility in financing options, as lenders are more likely to offer loans with lower interest rates and longer repayment terms.

For more information, please refer to the following sources:

• https://en.wikipedia.org/wiki/Cash_on_cash_return
• https://www.multifamily.loans