A great question came up today on the forums, inquiring what the difference was between Return on Investment (ROI) and Cash on Cash Return (CCR). I think the question was answered perfectly here, but I’ll elaborate a bit.
EXAMPLE:
Suppose you buy a house for $100,000 and sell it later for $110,000.
Your return on investment is 10%.
– The 10% is the increase that you see in your TOTAL INVESTMENT (Loan + Down Payment)
If you only put 10% ($10,000) down (we’ll ignore losing costs and commissions here) then your cash on cash return is 100%.
- The return you made on the ACTUAL CASH that you invested in the property is 100% ($10,000 increase on $10,000 cash invested).
If you paid cash in this situation, then CCR and ROI are equal.
If we use a similar example — suppose you buy a house for $100,000 and sell it later for $110,000 but this time you put 20% down on the property. Your return on investment is still 10%, but your CCR is now only 50%.
Article Author:
Joshua DorkinJoshua has written 539 articles for us.
Visit Joshua's Website: http://www.biggerpockets.com/
BiggerPockets.com was founded by Joshua Reed Dorkin in August 2004. An entrepreneur, web designer, real estate investor, and one-time realtor, Joshua was not satisfied by the online offerings of other real estate sites out there, and decided to build one himself. Mr. Dorkin's vision for BiggerPockets has helped to propel it into becoming one of the top real estate destinations online. His vision for the site and its future has brought national press attention to both Mr. Dorkin and to BiggerPockets.
Joshua Dorkin
John Fedro
Charles Feldman
Ryan Hartman
Ted Karsch
{ 1 trackback }
{ 2 comments… read them below or add one }
Great Post!
It is always very important to take into consideration your ROI and CCR whenever you are working on a deal. I usually try to get 2 times my cash investment on any residential deal.
Branson Missouri properties generally display great ROI and CCR due to their potential of positive cashflow with hardly any money down. I say this as a Broker/Realtor in the area specializing in investment properties.