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.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing