Investment Measures, Part III

Investment Measures, Part III
By: Nicholas A. Dunlap

This is the third part of a series on measuring potential real estate investments prior to acquisition and understanding how to qualify and quantify your investments.  For additional information on investing in commercial or multifamily real estate, please click here to purchase my book “The Four Benefits: Commercial Real Estate Investing & You.” 

Cash on Cash Rate of Return 

Cash on Cash is the gold-standard for measuring return on investment.  Whether you are a mom and pop investor or a commercial real estate institution, the $/$ is an important percentage for you to understand.  Simply put, the $/$ displays the ratio of dollars returned on dollars invested in percentage form.  Naturally, the higher the percentage, the greater the return and the happier the investor.  This formula can also be used to compare and contrast potential improvements being made to a property while ascertaining whether or not these improvements are favorable or unfavorable based on return measures and should be implemented.  Cash on Cash is subjective depending on two things: the dollar amount of operating expenses paid for by the gross income and the annual debt service if there is a loan on the property.  Perhaps the best thing about the Cash on Cash measurement is that it is a simple percentage to help you understand the ratio of the return on dollars invested.