The Payback Period measures how long it takes to earn back your original cash investment from annual cash flow.

Formula:
Payback Period = Initial Investment ÷ Annual Net Cash Flow

Why It Matters

• Simple Risk Indicator: Shows how quickly your money returns to you.

• Liquidity Gauge: Shorter payback = lower risk, especially for investors valuing cash recovery.

• Goal Tracker: Great for planning reinvestment or comparing deal timelines.

Example

Phoenix rental home:

• Initial Investment: $150,000

• Annual Net Cash Flow: $20,000

Payback Period = 150,000 ÷ 20,000 = 7.5 years

That means it takes about 7.5 years to recoup your invested capital — without factoring appreciation or tax benefits.

Phoenix Context

• Typical buy-and-hold investors here target 6–9 years for payback.

• High cash-flow properties can shorten that window to 5 years or less.

• Appreciation-focused areas (like Scottsdale or Norterra) may take longer, but offset it with value growth.

Final Thoughts

Payback Period gives you a clear timeline for risk and return. It’s simple, but when used alongside metrics like IRR, Cash-on-Cash, and Cap Rate, it completes your investment picture.

As your Phoenix investor-friendly agent, I’ll help you map out your payback timeline and plan reinvestments to keep your capital compounding.

📞 Contact Me Today
Brian Harris
Investor-Friendly Real Estate Agent
📍 Phoenix, AZ
📧 [email protected] | 📞 602-684-0198
🌐 www.azdreamsource.com