Present Value

Present value is the current worth of a sum received in the future, found by discounting it at a chosen rate of return. Cash on cash return skips this step: it compares one year of cash flow to cash invested without asking when later dollars arrive.

At an 8% discount rate, $9,512 received a year from now is worth about $8,807 today, and the same amount in five years is worth about $6,474. Summing those values across a hold, plus the discounted sale, gives the net present value once you subtract the cash invested.

For most rental decisions the one-year ratio is enough to rule deals out. Present value matters when timing differs, such as comparing a property that pays steadily from day one with one that needs two years of repairs before it cash flows.

Further reading: Present Value on Wikipedia.