What is cash on cash?

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Cash on cash is another ratio used by today’s investors to gauge the worthiness of an investment. Cash on cash is a general comparison value of cash flow to qualify if a property warrant further analysis. Possible uses would be see if a property is undervalued based on income being generated or on properties where cash flow is king.

Here’s the calculation:

Initial investment required to purchase $400,000 property = $125,000
Cash flow being generated from the property before taxes = $21,600

Calculation

Cash on Cash = Cash Flow before taxes / Initial Equity Investment
Cash on Cash = 21600 / 125000
Cash on Cash = 0.1728 or 17.28%

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