Calculate Reserves into Cash-on-Cash Return?

5 Replies

In reference to cash-on-cash return, when calculating how much money was invested into the property, should I include any money that came directly from me that I put toward the reserves?  Even if after the first 12 months, the reserves were never touched, should I still include that as money invested?

I would assume yes since it's going to sit there in the reserves, and I will be treating it as if it cannot come back to me personally.  

Perhaps if I'm able to pull out that money invested into the reserves at the end of the 12 months because I was able to inject rental revenue into there, then I would obviously not include it.

I think the general rule is that those do not count toward you COC as they artificially inflate it temporary, and then when you actually realize the expense, they would count against it worse.

Its just not a linear situation, vacancy could be 2 weeks this year and 3 months long next year. Furnace/AC Replacement could hit etc. Treat that money as though it doesn’t exist except what its for.

I’ve seen investors with larger portfolios eventually see it level out and become more predictable since you can spread those expenses out across more buildings/doors.

Originally posted by @Account Closed :

Don't over think things. Does it matter if you make 9% or 12%.  If no action is going to be taken don't even think about returns 100% of the time you will be disappointed.

 True, I only really plan on using it as a comparison across other properties when searching for a purchase so as long as I'm doing the same thing to them all, it all works out.