The ROI or cash on cash return is the most commonly utilized investment measurement in all of real estate.

Return on investment is calculated by taking the monthly or annual cashflow of an asset and dividing it by the total amount of money you invested into a property.

There’s a reason the cash on cash return is the most commonly used measurement in real estate.

Benefits Of ROI

It’s very simple to understand.

It gives you a quick snapshot of the profitability of a deal in a way that is easily compared to the stock market or other investment vehicles.

And the ROI is just a great way to determine returns since it’s based on the cash out of pocket you will be deploying.

Drawbacks Of ROI

While the simplicity of the cash on cash return is a benefit, it’s also a drawback.

The ROI only gives you a measurement of return based on the initial investment you made into the property at a specific point and time.

Your time value of money isn’t taken into account, which isn’t too important for some investors, and it also doesn’t measure your return based on your built up equity in the property.