Which type of investment is often evaluated using cash-on-cash return?

Cash-on-cash return is a financial metric commonly used in the evaluation of real estate investments. It measures the annual pre-tax cash flow generated by a property relative to the amount of cash invested in that property. This approach is particularly suitable for real estate because it focuses specifically on the cash income generated from the investment compared to the actual cash invested, allowing investors to assess the performance of an investment based on the cash they have put into it.

In real estate, this metric provides a clear understanding of how well a property is generating cash relative to the equity invested, which is crucial for making informed investment decisions. Investors typically utilize cash-on-cash return to compare various real estate investments and help identify potential returns from rental income or property flipping, making it a vital tool for those focused on this type of asset class.

In contrast, while stock investments, mutual funds, and fixed-income securities also generate returns, they typically analyze performance through different metrics such as total return, dividend yield, or yield to maturity, which encompass a broader range of factors beyond the cash investment made. Hence, cash-on-cash return is specifically tailored to the unique characteristics and performance tracking needs of real estate investments.