Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

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Prepare for the CAPS Exam with a comprehensive study of Module 2. Utilize our practice resources filled with flashcards, multiple choice questions, and thorough explanations to ensure your success!

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Practice this question and more.

What does cash-on-cash return measure?

The total income generated by the property
The ratio of cash flow to the down payment
The overall profitability of the investment
The change in property value over time

The correct answer is: The ratio of cash flow to the down payment

Cash-on-cash return measures the ratio of cash flow generated by an investment to the initial cash investment, specifically focusing on the down payment made for the property. This metric provides investors with insight into how well their investment is performing based on the actual cash they have put into the property, rather than looking at total revenue or property value appreciation. For example, if a property generates significant cash flow relative to the down payment, this can indicate a healthy return on that initial investment, making it a valuable metric for assessing the effectiveness of the investment in generating income for the investor. Measuring cash-on-cash return allows for a more direct evaluation of the property's performance in generating returns based solely on the cash invested, which is crucial for making informed investment decisions.