The *cash-on-cash return* (also called the *equity dividend rate*) is the ratio between the property’s cash flow in a particular year (usually before taxes) and the amount of the initial capital investment. It is expressed as a percentage.

Although you can calculate the cash-on-cash return based on projections for any future year, investors tend to look at this measurement as it relates to the expected cash flow in the first year of ownership. Since this calculation doesn’t take into account any time value of money, it probably does make sense to measure the cash flow that occurs soonest after you make the investment.

The cash-on-cash return is not a particularly powerful tool, but it has ...

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