The document explains the cash on cash ratio for commercial real estate investments, highlighting its relevance in evaluating income generation against personal investment. It demonstrates how this ratio considers factors like down payment and scheduled income but ignores the time value of money and potential sale proceeds. The document also provides an example calculation and encourages readers to try the cash on cash ratio through a free trial service offered on the website.

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Cash on Cash
for commercial real estate
investments and developments

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Why is Cash on Cash useful for
commercial real estate?
Cash on Cash is a very popular ratio in commercial investment real estate,
and is typically produced in most investment analysis. I like to think of the
Cash on Cash ratio as telling me how much cash I receive on my cash
investment. Because the Cash on Cash ratio takes financing into account, the
investment used in the calculation is how much the owner had to invest of
his own money, and the cash received is the amount less the debt payment,
which is the amount the owner actually gets. For this reason the ratio can be
really helpful when the owner is looking for an investment that to produce
income during the period that it is owned.

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Why is Cash on Cash useful for
commercial real estate?
A good example might be an investor who has decided to move from one property to
another through the exchange process to avoid the capital gain taxes from a sale. In
this case, the owner is probably more interested in the amount of yearly income that
will be produced by the new property rather than any appreciation (although having
both is best). In this case the Cash on Cash ratio is very helpful when comparing
alternatives.
However, since the ratio does not take into account the amount of sale proceeds or
losses or Time Value of Money', it, in essence, assumes that you receive your exact
cash investment back at the end of the investment. This of course is never true. If you
did sell your property in one year or any year after the sale price will almost certainly
be different (hopefully higher), and there will be costs involved in the sale.

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Cash on Cash
Considers / Ignores
• Considers: Down Payment, Scheduled Income (Current Year
Only), Debt Payment (Current Year Only), Vacancies (Current
Year Only), Expenses (Current Year Only)
• Ignores:Time Value of Money, Sale Proceeds, All Financing
(Loans), Other Years NOI and Debt Service.
... and a lot of other things

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Price, Down Payment, Expenses, Scheduled
Income (Rent Increase/Decrease, Vacancy,
Reimbursements, Free Rent), Loan Amount, and
Debt Payment.
What is the
Cash on Cash
Sensitive to?

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Cash on Cash Example
2010 Net Operating Income (NOI) $46,164
divide by the Downpayment $1,023,344
equals the 2010 Cash-on-Cash 4.51%
2010 2011 2012 2013 2014 2015
Total Gross Income $365,472 $372,443 $370,410 $376,040 $384,217 $414,321
Less: Vacancy & Credit Loss 19,084 3,202 14,620 5,049 3,501 50,321
Effective Income $346,387 $369,241 $355,790 $370,992 $380,717 $364,000
Total Operating Expenses $69,400 $71,244 $73,141 $75,094 $77,103 $79,170
Net Operating Income $276,987 $297,997 $282,649 $295,898 $303,614 $284,830
Total Debt Service $230,823 $230,823 $230,823 $230,823 $230,823 $230,823
Net Operating Cash Flow $46,164 $67,174 $51,826 $65,075 $72,791 $54,007
Cash on Cash Before Tax 4.51% 6.56% 5.06% 6.36% 7.11% 5.28%

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Watch Video
about Cash on Cash

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