What is Internal Rate of Return and Cash on Cash return?
Cash on Cash Return-return on invested capital… it’s the total cash earned on the total cash invested. Its quite common to use this metric for investment purposes in commercial real estate
Example: Cash on Cash = Annual Pre Tax Cash Flow/Total Cash flow
In this current market getting anywhere-7-9% cash on cash return
Depending on the asset class, it could be calculated while holding onto the property and also when the property is sold. This metric does not measure time value of money
Internal Rate of Return-interest rate that makes the net present value of all cash flow equal to zero. This is a more sophisticated way of measuring the investment. Can use excel to help calculate it. This metric a tool to help estimate the real estate investment’s probability and value over time.