Cash on Cash is not a movie, hahahahha… although someone told me about an older Tom Hanks movie named Cash and Cash or something like that. Anyways, cash on cash is a term you will hear from investors that is pretty simple to understand. It is basically how much money the investor/purchaser receives yearly (expressed as a percentage) in ratio to his initial investment. Don’t get confused let me break it down for you…
Investor buys shopping center for $1M and puts down $200k
Rents – Expenses = Cash Flow of $5000 (monthly) also known as NOI (Net Operating Income)
$5000 x 12 Months = $60,000 Net Operating Income Yearly
Cash on Cash = NOI Yearly / Initial Investment
Cash on Cash = $60,000 / $200,000
Cash on Cash = 30%
So what does this 30% cash on cash mean????? This means basically your client will receive all of his money back in about 3.25 years ($60,000 x 3.25). And this my financial friend is how the rich get richer… well one way.