Cash on cash return question

[Matt Ziegler]

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*This link comes directly from our calculators, based on information input by the member who posted.

[Guifre Mora]

Originally posted by @Matt Ziegler:

If I/we use money from another property that we own as a down payment, through a refi, does that change the cash on cash return?

Excellent question! But not easy to explain without a tutorial.

"Does that change the cash on cash return?"
NO for the effects of analyzing a single property & YES when you are analyzing multiple assets. 

Because each property will perform differently based on yearly expenses, debt service, rent increase, and appreciation through its lifetime you would need different financial modeling. In the calculator you used you can see this as the 
"Analysis Over Time" of a single asset. You see the behavior over time. If you were to use multiple asset financial modeling it would be tracking the bottom line of your portfolio as you refinance and reinvest time over time and purchase more assets. 

So your calculations are correct 3.63% ROI for that specific property. Now if your downpayment is costing you 5.5% you would be underwater at a glance correct? but the first property also cash flows has a history of cash flow and initial investment ROI. So your portfolio could just be an average of both ROI for simplicity.

While there are many ways to measure investment performance, few metrics are more popular and meaningful than the return on investment (ROI) and internal rate of return (IRR). Across all types of investments, ROI is more common than IRR largely because IRR is more confusing and difficult to calculate.