Lender · Nashville, TN · Member since 2017 · 61 posts · 26 votes
I've seen it both ways. Down payment divided by annualized net profit on the rental. However, if you are using borrowed funds as the down payment (ie HELOC), do you plug that in as "cash" even though it's debt? To me, debt isn't cash and if it can be leveraged, yet the project still cash flow, isn't that the definition of infinite cash on cash return?
Thoughts from my other pro lenders out there coaching their clients?
Not a pro lender or a coach. If you're borrowing money for your down payment your coc return is infinity. So, when we borrow money for our down payment, we use that for the calculation. The point of the measure is given the same investment, could you make more somewhere else. So whether it's your money or someone else's, you want to deploy it to its maximum potential. So if you borrow 20k from a friend at 6% and are comparing two comparable investments, all else equal you'll want the one with higher cash on cash return.