The Must-Know Number for Real Estate Investing! 🔣

[Pratap Koppula]

Cash returns have two distinct aspects that are intertwined.

1️⃣ The ability of the asset to generate free cash flows (Operating Income) 🔼

2️⃣ The amount of cash available to investors
                ➡ Operating Profit                       $376,453
               ➖ Mortgage Payment                  $280,511
               🔀 Cash available to Investors       ($4,058)

3️⃣ Cash-on-cash return
               🔀 Cash available to Investors      ($4,058)
               ➗  Capital Invested                  $1,407,000
🛅 Cash on Cash Return 💯                           (0.29%)

This calculation enables investors to compare the returns of different real estate investments and gain an understanding of the profitability of the investment 💡 .

Key variables influencing cash on cash returns.
 Cash on cash returns💪are generally lower compared to other forms of investment due to high interest rates and the inclusion of a loan's principal amount in the calculation. As a result, many cash-on-cash returns are negative😷.

⌛ Investors should consider their time horizon when assessing potential returns of investments, as longer time horizons usually lead to higher cash-on-cash returns due to declining interest portions over time🔝.

🛐 Investors should assess the cash flow stability of an investment before deciding to invest, as investments in more stable markets may have lower returns but less risk, whereas investments in unstable markets may have higher returns but higher risk🔃.

📢 Overall, cash on cash return is an essential metric to consider when evaluating real estate investments, as cash is a vital factor in determining the success of any investment🌞.

In the next post we will cover Time value of money.