Return On Investment vs Cash On Cash Return in Real Estate Investing

Описание: Return on investment and cash on cash return - are they different or the same?

In this video, we'll dive into the differences between ROI and Cash on Cash Return, and discuss when each metric should be used to make informed investment decisions.

These two terms get tossed around a lot and as a result are frequently misused by beginners, intermediate, and advanced real estate investors.

That said, let’s begin by defining these terms and then we’ll jump into their differences and why they’re two of the most important terms in real estate investing.

Let's start by defining ROI.

ROI, or return on investment, is the measure of the profit or loss made on an investment relative to the amount of total money invested.

In real estate, ROI is calculated by dividing the net profit, that is the profit after all expenses and taxes are paid, by the total amount of money invested.

For example, if you buy a rental property for $100,000 and your net profit after all expenses and taxes is $10,000 per year, your ROI would be 10%.

Now let's talk about Cash on Cash Return.

Cash on Cash Return is a measure of the return on cash invested in a property.

In other words, it's the percentage of cash that you receive each year compared to the amount of cash that you have invested in the property.

For example, if you invest $20,000 in a rental property and receive $2,000 in cash flow after expenses each year, your Cash on Cash Return would be 10%.

So, what's the difference between ROI and Cash on Cash Return?

While both measures are used to evaluate the performance of a real estate investment, the main difference lies in how they are calculated.

ROI takes into account the entire amount of money invested, including any financing or leverage used to purchase the property, while Cash on Cash Return only takes into account the actual cash invested in the property.

In addition, ROI considers the long-term potential appreciation of the property, while Cash on Cash Return focuses on the short-term cash flow generated by the investment.

It's important for real estate investors to understand these terms because they provide valuable information about the profitability of an investment.

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Timestamps:
0:00 - Intro
1:02 - Definitions
3:15 - Which Should You Prioritize
5:17 - Return on Investment
7:51 - Cash on Cash Return

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