Real estate returns get quoted three different ways, and people often confuse them. Each answers a different question, and a deal can look great on one and mediocre on another.
The three metrics
- Cash-on-cash return — annual cash flow divided by cash invested. A simple yearly yield: "what's this paying me right now?" It ignores timing and appreciation.
- Equity multiple — total dollars returned divided by dollars invested. "For every $1 in, how many come back?" A 2.0x means you doubled your money — but it says nothing about how long that took.
- IRR (internal rate of return) — the time-weighted annualized return across the whole hold. It accounts for when cash arrives, so earlier money counts for more.
Why use all three. IRR rewards speed, the equity multiple rewards total profit, and cash-on-cash shows current yield. A fast flip can have a high IRR but a small multiple; a long hold can have a big multiple but a modest IRR. Read them together.
Not advice. This is general educational and operational information — not legal, accounting, tax, or investment advice. George Howell Ward is not a CPA or registered investment adviser and provides no IRS Circular 230 services. For decisions, consult a licensed professional in your jurisdiction.
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