Understanding the Relationship Between Cash Flow and Cash on Cash
I am having trouble understanding the relationship between various metrics used to analyse a rental property. I had the impression that if a rental property cash flowed well it would have a good cash on cash return. But a potential duplex has me scratching my head.....
The asking price is $94,900 and each side rents out for $695/mo./unit or $1390/mo. so the gross annual income is $16,680. (monthly expenses: debt service $385, tax $83, insurance $166, maintenance and cap x $139, vacancy $70) After expenses I calculate it would net $547/mo. or $273.50/mo/unit, which seems very good, right? Based on the monthly net income, the NOI would be $6,564. So, if you put 20% down on $94,900 that is $18,980. Than gives you a cash on cash return of 7.97%, which is really not good.
So, am I doing the math wrong or is it possible to have a good cash flow with a bad cash on cash return, and if so what does that mean?
Thanks for the help.