ROI vs CCR

7 Replies

What is the difference between ROI-Return on Investment and CCR-Cash on Cash Return?

A lot of people seem to use them to mean the same thing and I am getting very confused.

Suppose you buy a house for $100,000 and sell it later for $110,000. Your return on investment is 10%. If you only put 10% ($10,000) down (we'll ignore losing costs and commissions here) then your cash on cash return is 100%. If you paid cash then CCR and ROI are equal.

That is what leverage is all about. Just remember, leverage increases risk.

ROI and CCR are oftenly used interchangeably. CCR is a type of ROI. There are many different ways to figure your Return On Investment, but Cash on Cash Return is a very specific way of figuring ROI.

Annual Cash Flow/Initial Investment is CCR, which is a form of factoring ROI. You could hear an investor refer to it both ways, but to be more specific I would say CCR.

The easiest way to remember it is thsi...

ROI - Return on Investment
a return on the entire amount INVESTED

CCR - Cash on Cash Return or Return on Cash
a return only on your out of pocket cash expenses

Cash-on-Cash Return is also called the Equity Dividend Rate.

Although you could base it on the cash flow projection for any future year, investors generally look at this only in regard to the first year's before-tax cash flow. That's because it doesn't take into account the time value of money, so the longer the time between investment and return, the less meaningful the result. It has been popular because it allows a quick-and-easy single year comparison to other uses of your investment capital, such as a T-bill.

Truth be told, CCR is not a particularly good measurement of your investment's performance. You're better off with a discounted cash flow analysis, where you can take into account all of the expected future cash flows (including the resale), along with their timing.

This is really good, but I am just a little slow still.  I need clarification on what is specifically meant by "the return".  Is that what you get back or another word for amount?  I am sorry for such a simple question just trying to completely understand this concept/formula.

Thank you in advance

Ricketa

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