I've searched and cannot find much that pertains to this issue.
I just bought a very small house(cottage) for $25K in cash. I may try to refi/heloc/etc...etc...etc... in the future to get my money back out to re-invest.
I'm thinking that the cash on cash for something like this is:
normal cash-on-cash formula as it works with the numbers of the refinance
whatever return you would have on that cash(put in whichever investment you choose)--- for the amount of time the deal is using "cash"- and not bringing income to you.
Hard to explain- but does this seem correct? I'm not really worried about my return so far--- just interested in learning the math...
Cash on cash return for pre-tax returns.
So if you invested 100,000 cash and your target was a 15% pre-tax COC return you would be looking for 15,000 annually off the investment.
@Jim P. If you are going to finance it and pull cash out, be sure to do it within 6 months or else you'll have to wait 12 months under the delayed refinance rules.
@Joel Owens - thanks. Is it really that easy? My rough numbers(NOT real numbers, only quick numbers) would be:
$6,000 per year / $25,000 cash purchase price = 24 % cash-on-cash???
I understand there are all the other factors that we use on these calculations--- but is that the jist of it?
Thanks for info- I'll look into refi very soon...
Jim it's less expenses to get COC. So if your gross income is 6,000 a year then that Is not COC.
If expenses were 50% then you would use 3,000 as the number.
Delayed financing allows you to cash out between 0 and 6 months. It must have been a cash purchase and you can only take a maximum of 70% of purchase price (somewhere around there).
After 6 months you are no longer eligible for the DF, however Fannie guidelines only require 6 mo seasoning so you can then get a cash out refi using a new appraisal value at that point. I'm closing one tomorrow, 7 month on title using a new appraised value.
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