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What is the Average Annual Return?

The Average Annual Return (AAR) measures the amount of cash generated by an investment over a period of years. It’s also sometimes called the Average Rate of Return (ARR) or the Accounting Rate of Return (also, ARR).

To calculate this, add up all the cash you’ve made on an investment. Divide it by the number of years you’ve had that investment. That’s your average cash return. To get the rate of return, divide that by the amount of your initial investment. 

You can use this for any type of investment, not just real estate. This metric is helpful in comparing everything with everything.