A licensee needs to calculate the cash-on-cash return on investment for a prospective buyer. Which of the following costs should be included in the calculation?

Prepaid interest is not a recurring expense and does not affect monthly cash flow; it is an upfront payment. Principal payments reduce the loan balance but do not represent an expense impacting cash flow for the investor in the same way that interest expense does. Monthly rents are income rather than costs, and thus cannot be included in an expense calculation for cash-on-cash return.

Brokerage fees and commissions are transactional costs incurred during property acquisition and do not reflect ongoing operating expenses. Principal payments, as mentioned previously, do not count as cash expenses affecting the property's cash flow. Therefore, these costs are irrelevant for the cash-on-cash return calculation.

Investment interest may not apply to all scenarios, particularly if it refers to investment income rather than costs. While liability insurance and property taxes are indeed costs associated with property ownership, they do not include all necessary operational costs like property management fees and interest expense, which are critical for cash flow considerations.