Advantage Software LLC      How is Cash on Cash Return Calculated?
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       Cash on Cash Return
  Cash on Cash Return is a percentage that measures the return on cash invested in an income producing property.  It is calculated by dividing before-tax cash flow by the amount of cash invested (down payment amount) and is expressed as a percentage.  If before-tax cash flow for an investment property is equal to $15,000 and our cash  invested in the property is $100,000, cash on cash return is equal to 15%.  
                                                                    Before-Tax Cash Flow                        $15,000
                     Cash on Cash Return  =   ------------------------------    X  100  =    ---------------  X  100   =  15%
                                                                          Cash Invested                                 $100,000
                The following shows how before-tax cash flow is derived. 
                                  Gross Income                                      54,500
                                       Less Vacancy Amount                     2,500
                                  Gross Operating Income                    52,000 
                                       Less Operating Expenses              17,000  
                                   Net Operating Income                       35,000
                                       Less Annual Debt Service             20,000
                                   Before-Tax Cash Flow                       15,000
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                The Cash on Cash Return is used to evaluate the profitability of income producing properties.  It is an important analysis tool when comparing multiple income properties.  The investor should rank income properties based on their potential return on investment and the cash on cash return should be given a strong weighting.  The following should be considered when using this real estate investment ratio.  It is a before tax calculation and doesn't include the impact of the investor's tax bracket on their returns.  It doesn't consider the wealth building potential of a property via appreciation.  A property in one area of a city may have a better cash on cash return then a property in another location, but it may not appreciate as fast because of it's location.  One location may be more desirable than the other.  When evaluating an income property, the investor should consider both a property's potential for appreciation and cash on cash return.  

The On Target real estate investment software summarizes the before and after-tax Cash on Cash return for an income producing property over a 10 year period on the cash flow statement and in the Ratio Analysis report.  The cash on cash return in your first year of operation or at the time of purchase is the most important.  Each successive year is based on your income growth rate and expense growth rate assumptions.  It is a one of several very important ratios that measure the profitability of income producing properties.  If you would like to purchase the On Target real estate software for $99.95, click on  Purchase Software   Click on   Software Features  to learn more about On Target.  The On Target real estate investment software includes a 30 day money back guarantee and free support.

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