Calculating cash on cash first timer

[Matt F.]

Hi folks - rather new to investing and my situation is a little unique so i am looking for some feedback here.  I few years back i purchased a townhouse as my primary residence and lived in it for a number of years.  I've since purchased a single family home and have moved into that and am renting the townhome.  i am looking at how to evaluate this "investment".  i lived in the townhouse for 5 years so in terms of calculating my cash on cash return, do i factor in all those mortgage  payments for those 5 years or truly just the money that i put out initially when i bought it 5 years back (deposit, down pmt, appraisal fee, closing costs etc)?

obviously when i bought it my intention wasn't really a buy and hold rental, but as i got older i decided this is something i wanted to do and figured since i already had the townhouse, why not start there.

also- i know cash flow is looked at as a major goal of any buy and hold operation but just because the first property doesn't have strong cashflow, does that automatically make it a bad investment?

thoughts, feedback, advice ?  thanks 

[Roy N.]

Originally posted by @Matt F.:

Thanks Roy but how do i go about calculating cash on cash return ? not sure where i start with that.

Thanks

 Cash on Cash return is the ratio of your cash income {Cash Flow Before Taxes (CFBT)} to the cash invested (your total capital injected prior to property being put into service).

As an example if the property were valued at 150K when it became a rental and, between your initial downpayment, subsequent principal payments, and capital improvements before it became a rental, you had 50K in equity (100K in debt), then your cash invested is 50K.

Say the townhouse rents for $1000/month with operating expenses and debt service of $700/month; your cash income (CFBT) is $300/month ($3600/year).  In this instance your cash-on-cash return would be 7.2%.