OfflineI would like to go through how to figure a cash on cash return on an investment for real estate. This is a great tool to use when you are looking to buy rental properties for your self or you have an investor buying rental property. You can show them the return on investment.
Purchase price of property $100,000
down payment $25,000
Loan amount $75,000
Payment $500
Management fee $50
Total monthly expence for property $550
rental amount $800
Cash flow $250
To figure cash on cash return get the total profit per year $250 * 12 = $3000 profit per year
Then take the amount of money put into the property $25,000. Take 3000 / 25,0000 = 12%.
12% is the yearly cash on cash return.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
This s very helpful! I will bookmark!
Learning and progressing every day,
Valerie
Valerie
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Thankyou! This will help all of us.
Purchase price of property $100,000
down payment $25,000
Loan amount $75,000
Payment $500
Management fee $50
Total monthly expence for property $550
rental amount $800
Cash flow $250
To figure cash on cash return get the total profit per year $250 * 12 = $3000 profit per year
Then take the amount of money put into the property $25,000. Take 3000 / 25,0000 = 12%.
12% is the yearly cash on cash return.
Thanks a lot for the explanation put so simply. Now I actually understand ROI and how it is calculated.
Thanks
Judi
thanks and how do you determine the expense costs per month, the $550 in this scenario? Is there a formula for this or just a number for the sake of the example given? Thanks again for sharing this!
Jill Holden | San Diego
Investor Services
Team Development
I would use a mortgage calculator, which you can find easily online. I took the $75,000, which is the amount that would be mortgaged, and figured a standard mortgage with a 30 term and 5.5% interest (to find the interest rate I use cnnmoney.com where they have an interest rate for a 30 year mortgage and add about 1% because it is an investment loan). I estimated the taxes and insurance and add that number to the mortgage amount, which is where I come up with the $500. The management fee is an estimation, but you can count on 8%-10% for management fees.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
Just a side note...Return on Investment or ROI is actually calculated by using the following formula:
ROI = Profit from Investment/Cost of the Investment(Purchase Price)
For example:
Cost(Purchase Price)= $100,000
Sale Price = $300,000
Profit = $200,000
ROI = 200,000/100,000 = 200%
ROI is always represented as a percentage
The Cash on Cash Return is represented by this formula:
CoCR = Total Income(Profit)/Total Cash Out of Pocket(Down payment)
Using the same numbers as Eric used above AND Assuming that we did not hold this property for any additional cash flow whatsoever. This is what it would look like.
Purchase price of property = $100,000
down payment $25,000
Loan amount $75,000
Sale Price = $300,000
Profit = $200,000
CoCR = $200,000/$25,000 = 800%
Of course these are simplified answers that don't take into account any sales costs, holding costs and such. But you can certainly tell a difference between the two numbers. Cash on Cash return is used to compare the value of properties over time. ROI is a one time snapshot of what the overall return was of the property. Hope this clarifies more than confuses. And hopefully I got it right. If not please feel free to correct me
Lance J. Palmer
Silver Key Properties of Idaho, LLC
Silver Key Properties of Montana, LLC