Cash-on-cash %: operating or free?

3 Replies

The term "cash-on-cash return" doesn't seem consistently defined. I'm curious if people are typically using operating (no capex reserves) or free (with capex reserves) cash-on-cash returns when evaluating deals as it relates to the 10-13% cash-on-cash minimum that many target. There's can obviously be a big difference between the two methods. Free cash-on-cash seems to make the most sense to use as it closer reflects reality.

https://www.investopedia.com/ask/answers/111314/whats-difference-between-free-cash-flow-and-operating-cash-flow.asp

@Brian Jolliffe I agree with @Joe Villeneuve about. It's the cash you payout / cash you receive = cash on cash ROI.

The cash paid out consists of downpayment, closing costs, and renovation costs - all the cash needed to get a deal. Cash you receive is the net cash after all expenses have been paid, including debt servicing.

Originally posted by @Robert Leonard :

@Brian Jolliffe I agree with @Joe Villeneuve about. It's the cash you payout / cash you receive = cash on cash ROI.

The cash paid out consists of downpayment, closing costs, and renovation costs - all the cash needed to get a deal. Cash you receive is the net cash after all expenses have been paid, including debt servicing. 

 Correct.  It's called Cash on Cash Return for a reason.  It involves nothing but cash, all cash, and only cash in the equation...and, it's only for the first year.