what is cash on cash return

Cash on cash return is a financial metric used to evaluate the cash flow from income-producing assets, particularly in real estate transactions. It is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. The formula for calculating cash on cash return is annual pre-tax cash flow divided by the total cash invested in the property. This metric is used to determine if a property is undervalued, indicating instant equity in a property, and to evaluate investment opportunities. Cash on cash return is a levered metric, meaning it takes into account the debt used to finance the investment. It is important to note that the formula does not take into account any appreciation or depreciation, and it does not account for other risks associated with the underlying property.