Cash-on-Cash return, often abbreviated as CTC, is a metric used to evaluate the profitability of a real estate investment. It represents the ratio of annual before-tax cash flow to the total amount of cash invested. For example, if an investment property generates $10,000 in annual cash flow after expenses and the initial cash investment was $100,000, the cash-on-cash return is 10%.
This return is valuable because it provides a clear understanding of the immediate return on capital. It simplifies the process of comparing potential investments, especially when different properties require varying levels of financing and initial outlay. Historically, it has been a cornerstone metric for individual investors seeking predictable income streams from their real estate holdings. It’s particularly relevant when assessing the impact of leverage on investment performance.