Cash-On-Cash Return

Cash-on-Cash Return measures the velocity of your money.  It can be described as how long an investment pays back your down payment.  For example, if your down payment is $20,000, how soon would your monthly cash flow add up to $20,000.  If you cash flow added up to $20,000 in one year, your cash-on-cash return would be 100%.  If it takes two years, your cash-on-cash return would be 50 percent.  If it takes three years, it would be 33%. 

Commercial Real Estate Investing can produce amazing returns.  Cash-on-cash returns of over 100% is not uncommon.  Now, if you were to go to your local bank and deposit $20,000 into its most aggressive CD investment for one to three years, what type of a cash-on-cash return could you expect?  Maybe 2% to 4%?  As an investor, you place an emphasis on cash-on-cash return when you invest simply because you need to know how quickly you can get your down payment back, so you can reinvest it into another project.