Property Management
When calculating a property's 'cash-on-cash return,' an investor divides:
AA. NOI by the total property value
BB. Before-tax cash flow by the initial cash invested (down payment plus closing costs)✓ Correct
CC. Net income by gross potential income
DD. Annual depreciation by the total investment
Explanation
Cash-on-cash return = Before-Tax Cash Flow (BTCF) ÷ Total Cash Invested. BTCF = NOI − debt service. Total cash invested includes the down payment, closing costs, and any initial repairs. This measures the annual return on the actual cash invested.
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