All Forum Posts by: Pavel Sakurets

 Find deals, buy cheap, resell, repeat. Concentrate on how you can make cash now. Don't think about equity, it could change any day. Create multiple sources of income. And buy and hold real estate only after you are not able to generate income doing wholesales and flips. Andrew Carnegi said: "Own nothing, control everything.'' (Meaning you can control real estate by buying an option to purchase it later and exercise the option when the time is right)

 Jerry, I owned 60+ properties (commercial and residential) before I was 30 (all self made, I came into the US by myself when I was 20 with $50), and thought that my equity was over 5M. A bit surprised that you owned 18 properties with your brother and had 1M in equity. In 2008 most of my equity was wiped out. Lesson learned is below:

 The true equity is cash or the equity that you will get if you need to fire-sell your investments. Remember this "If you think that you own something, it starts owning you!''

Don't think about equity, the true wealth is the current value of future cash flows that you can generate!

 No, I'm not saying that. You can pay down the principal every month, but still loose money every month. Principal reduction does not play any role in Net Income calculation.

Not sure what are you asking me.

On tax returns NI is calculated:

NI=Revenue - Expenses+Depr+Amort

Principal reduction doesn't show on P&L, correct, but $200/per month net income does.

Thus you have positive income on P&L, but negative cash flow

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This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (December 2009)

In investing, the cash-on-cash return is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage.

It is often used to evaluate the cash flow from income-producing assets. Generally considered a quick napkin test to determine if the asset qualifies for further review and analysis. Cash on Cash analyses are generally used by investors looking for properties where cash flow is king, however, some use it to determine if a property is underpriced, indicating instant equity in a property.

Example[edit]

Suppose an investor purchases a $1,200,000 apartment complex with a $300,000 down payment. Each month, the cash flow from rentals, less expenses, is $5,000. Over the course of a year, the before-tax income would be $5,000 × 12 = $60,000, so the cash-on-cash return would be

Limitations[edit]

• Because the calculation is based solely on before-tax cash flow relative to the amount of cash invested, it cannot take into account an individual investor's tax situation, the particulars of which may influence the desirability of the investment. However the investor can usually deduct enough Capital Cost Allowance to defer the taxes for a long time.
• The formula does not take into account any appreciation or depreciation. When some cash is a return of capital (ROC) it will falsely indicate a higher return, because ROC is not income.
• It does not account for other risks associated with the underlying property.
• It is essentially a simple interest calculation, and ignores the effect of compounding interest. The implication for investors is that an investment with a lower nominal rate of compound interest may be superior, in the long run, to an investment with a higher cash-on-cash return.

It is possible to perform an after-tax Cash on Cash calculation, but accurate depictions of your adjusted taxable income are needed to correctly address how much tax payment is being saved through depreciation and other losses.

Don't know how you calculate cash on cash return J Scott, but what I know it's calculated as NI before taxes or (EBTDA) divided by the amount of cash invested. In the example above, lets say you invested 10K when you bought a property and receive $200/net income per month, times 12=$2400/year. $2400/$10,000=24% cash on cash return.

Thus you get 24% cash on cash return, but at the same time get a negative cash flow of $300/month from the example of my previous post.

If somebody knows anything differently, please jump in.

yes, you can.

Example: you collect $2000/month in rent.

Your interest pmt on your loan is $1800 and principal is $500, total pmt $2300.

You receive a negative cash flow of $300/month, but on paper you receive a profit of $200/month.

To answer Roy's question: it's zoned commercial and any business can operate from that building (from manufacturing to retail)

Ben's question: Expenses for the building are $830/month for property taxes and $120/month insurance. Which lives $2250/month for a debt service.

If you use 10% CAP rate (which is unheard of in MN, normal cap rates are from 5-7%)

$2,250x12/10% the value of the building is 270k

if you use 5% CAP, the value is 540k

But using a CAP Rate for valuation is not the best approach.

Guy's question: yes, I offer seller's financing at very good terms 5% APR, 360 AMO, 15k down

If a person will not want to sell you a property and transfer the deed at closing, it will take you years in court to win or loose.

Anybody could say that he or she was drunk when the documents were executed, it's your word against her word. Thus have a witness sign the PA or have her sign in front of the closing attorney.

It reminded me case in the law that I learned 10 years ago ''a guy was high as ponderossa pine'' he claimed when he signed the PA, but in court it was proven that he wasn't. Anyway, every reasonable person would agree that in the USA typically the party who wins in court is usually the one who has a better attorney :)