Okay, now that we’ve discussed the meaning of cash on cash return and discovered how to calculate cash on cash, let’s consider how an investor might find it useful to the whole real estate investing process.
1. It can help the investor gauge the profitability an income property against another investment opportunity.
2. It can help the investor compare similar other income properties.
In other words, because cash on cash is only affective as a first-year return it shouldn’t be used to determine the whole profitability of an income property, and by itself shouldn’t be used to decide whether a property is fit to buy. On the other hand, it is a good way to quickly and easily compare one opportunity against the other.
