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

10 Replies

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?

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.

Originally posted by @Paul C. :

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.

woohoo!

Originally posted by @Justin C. :

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.

--------------------------------------------------

Cap Rate:

NOI/Purchase+Renovations

---------------------------

--------------------------------------------------

Is there something wrong here?

Your definition of a Cap Rate is incorrect.

Originally posted by @Bob Bowling:
Originally posted by @Justin C.:

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.

--------------------------------------------------

Cap Rate:

NOI/Purchase+Renovations

---------------------------

--------------------------------------------------

Is there something wrong here?

Your definition of a Cap Rate is incorrect.

Well... Thanks.  I guess...

Originally posted by @Justin C. :
Originally posted by @Bob Bowling:
Originally posted by @Justin C.:

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.

--------------------------------------------------

Cap Rate:

NOI/Purchase+Renovations

---------------------------

--------------------------------------------------

Is there something wrong here?

Your definition of a Cap Rate is incorrect.

Well... Thanks.  I guess...

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.  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?

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

Value = NOI / Cap rate

Originally posted by @Nick Williamson :

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

Value = NOI / Cap rate

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.

@Bob Bowling I'll allow it :)

Thanks guys

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