How do you determine Cash on Cash ROI?

Rental Property Investor · Franklin, TN · Member since 2014 · 145 posts · 44 votes

I know how i do it, just interested to know how alot of you come to your percentage on here.

I see some pretty high percentages, and wonder if you guys are factoring in the same numbers as I am in my equations (rent minus repairs / piti / vacancy/turnover / capital expenses / property management / lawncare/maintenance)

Interested to see responses..

Thanks and happy new year!

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

11y

Cash on cash return means exactly what the words mean...within the first year. It isn't that complex. It's a percentage of how much CASH you got back related to how much CASH you put in.

If I buy a property worth $100,000, for $80,000, with 20% down ($16,000) and I finance the rest ($60,000), I'm putting $16,000 in CASH in.

If within the first year, with the same house, I get $300/month NCF back, or $3600 in that first year, my CCR is $3600/$16,000 = 22.5%.

If, added to this, I rent a parking space for $25/month, and I have no expenses to offset this CASH income, my CASH income is now $3900/month...so my CCR is:
$3900/$16,000 = 24.375%.

If, during the year I have to pay cash for a furnace ($1000), my CASH income in that 1st year is now $2900, so the CCR is: $2900/$16000 = 18.125%

If, I paid the full AP of $80,000 in CASH, got the $3600/yr in NCF, and I refinanced and got all of my CASH I used to buy the property back, my CASH coming back would be $83,600 so my CCR would be: $83,600/$80,000 = 104.5%...as in I got all of my money back, plus an additional 4.5%

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11y
Some posters on BP are noise. Just hit the mute button.......... : )
There is also an ignore user feature.
Of course I am talking in generalities.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
Originally posted by @Seth Mosley:
This turned into an interesting discussion - i was just trying to verify that my methods of figuring up my ROI percentages are in fact a good way of doing it and I'm not crazy :)

If you're interested in the topic, I HIGHLY recommend this book:
http://www.amazon.com/Every-Estate-Investor-Financ...
Of course, Bob disagrees with the book's definition of Cash Flow (my definition above that Bob disagrees with is nearly verbatim out of the book), but given the credentials of the book's author, it's pretty clear which of them doesn't know what he's talking about... :-)
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Seth Mosley
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Rental Property Investor · Franklin, TN · Member since 2014 · 145 posts · 44 votes
11y
Originally posted by @J Scott:

Originally posted by @Seth Mosley:

This turned into an interesting discussion - i was just trying to verify that my methods of figuring up my ROI percentages are in fact a good way of doing it and I'm not crazy :)

If you're interested in the topic, I HIGHLY recommend this book:

http://www.amazon.com/Every-Estate-Investor-Financ...

Of course, Bob disagrees with the book's definition of Cash Flow (my definition above that Bob disagrees with is nearly verbatim out of the book), but given the credentials of the book's author, it's pretty clear which of them doesn't know what he's talking about... :-)

Just ordered it! Looking forward to reading! Thanks for the recommendation!
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
@Bob Bowling -
I'd love to send you a copy of the book I recommend above as a belated Christmas gift...send me your address and I'll have it sent to you. I think you'd find it very enlightening...
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