Could cash-on-cash be the same as cap rate?

Question

Noob question... If I'm paying cash for a property... does the math workout to be the same?  Purchase price is $17500 and will have about $25000 invested after renovations.

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Cap Rate:

$3,120/$25,000 = 12.48%

NOI/Purchase+Renovations

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Cash on Cash

$3120/$25000 = 12.48%

NOI/Cash Invested

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Is there something wrong here?

Nick Williamson · Answer

@Bob Bowling I'll allow it :)

Account Closed · Answer

Please allow me to tweak that just a bit.

Cap rate = NOI/ACTUAL closed sales price.  This is the result of an investor analysing the NOI and coming to an agreement with the seller of a price they will give up that NOI.  NO SALE?  NO CAP RATE!

VALUE = The Analyzed NOI that you want to buy/ the market cap rate derived by SIMILAR ACTUALLY CLOSED SALES.

Paul C. · Answer

You got it right!  Cap rate is the return without leverage.  So by definition, the cap rate is the cash on cash return when no leverage is used.

Justin C. · Answer

Thanks guys

Nick Williamson · Answer

Cap rate = NOI / Purchase price (repairs and cap-x are not included)

Value = NOI / Cap rate

Rosalina Brenda Berk · Answer

@Justin C. That's right. Cap rate is independent of financing and C.O.C. is directly related to the amount of cash you put down on the investment. If you haven't already read this, I found this blog post super helpful: http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/

@Bob Bowling How do you define cap rate?

Account Closed · Answer

You are welcome @Justin C., I guess.....   What NOI did you buy for $17, 500?  That divided by your purchase price is your cap rate.

Justin C. · Answer

Well... Thanks.  I guess...

Account Closed · Answer

Your definition of a Cap Rate is incorrect.

Justin C. · Answer

woohoo!

Could cash-on-cash be the same as cap rate?

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