A great question came up today on the forums, inquiring what the difference was between Return on Investment (ROI) and Cash on Cash Return (CCR). I think the question was answered perfectly here, but I’ll elaborate a bit.
Suppose you buy a house for $100,000 and sell it later for $110,000.
Your return on investment is 10%.
– The 10% is the increase that you see in your TOTAL INVESTMENT (Loan + Down Payment)
If you only put 10% ($10,000) down (we’ll ignore losing costs and commissions here) then your cash on cash return is 100%.
– The return you made on the ACTUAL CASH that you invested in the property is 100% ($10,000 increase on $10,000 cash invested).
If you paid cash in this situation, then CCR and ROI are equal.
If we use a similar example — suppose you buy a house for $100,000 and sell it later for $110,000 but this time you put 20% down on the property. Your return on investment is still 10%, but your CCR is now only 50%.