Using the cash-on-cash return for a real estate investment analysis is much like reading a novel in Reader’s Digest. You won’t get the whole story, but does offer a “quick read” to those investing in rental property.

Expressed as a percentage, cash-on-cash return measures the ratio between a real estate property’s anticipated first-year cash flow to the amount of investment initially made to purchase the rental property.

Moreover, because it doesn’t take into account any time value of money, it’s best to restrict the cash-on-cash return as a measurement of a residential income property’s first year cash flow…and not its future year’s cash flows.

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