New York State Real Estate Salesperson Licensing Exam

What is the cash on cash return for a property valued at $2,000,000 with a $500,000 down payment and a monthly rental income of $15,000?

1. 30%

2. 36%

3. 25%

4. 40%

The correct answer is: 36%

To determine the cash on cash return, you begin by calculating the annual cash flow from the property, followed by dividing that amount by the total cash investment (which is the down payment). First, the monthly rental income is $15,000. To find the annual income, multiply this amount by 12: $15,000 x 12 = $180,000. Next, since there is no mention of operating expenses, property management fees, or taxes in the question, we can assume that the full amount is net income for the purpose of this calculation. Therefore, the annual cash flow is $180,000. The total amount of cash invested in the property is the down payment, which is $500,000. The cash on cash return is calculated by taking the annual cash flow and dividing it by the cash investment, then multiplying by 100 to convert it to a percentage: Cash on Cash Return = (Annual Cash Flow / Cash Investment) x 100. Using the numbers we have: Cash on Cash Return = ($180,000 / $500,000) x 100 = 36%. This calculation indicates that selecting 36% reflects the return on the cash that has been invested in the property. Understanding