How would i calculate
cash on cash return for a property i'm now renting that was my primary residence for approximately 8 of the last 11 years?
After examining the investment, the numbers look good
regarding cash on cash return, but once I build equity in the property I'm not sure when to pull out cash.
I go by the numbers they say on the webinars — at least $ 200 cash flow per door (so you should be bringing in at least $ 7k / month right now) and at least 12 %
cash on cash return on investment.
Situation 1: Invest in a market where it's likely to get
cash on cash returns of 12 %, but the market the property is located in hasn't appreciated at all over the last 5 years
Even though there may be additional tax benefits such as depreciation and deduction of interest payments, these are not part of the cap rate, cash flow, or
cash on cash return calculations.
If you were to leverage your money through the bank 25 % down you'd be looking at a leverage rate of 16.6 %
cash on cash return based off 50 % rule.
Assets like these can produce cap rates typically between 8 - 13 % ROI and the
highest cash on cash returns are typically found in all - cash assets that can be acquired for $ 35,000 — $ 65,000.
I
think cash on cash return is a great metric to use to evaluate a potential deal because it is quick and easy allowing you to figure out the potential return of an investment in no time at all.
For me, it's hard to get excited about stocks at these valuations when I can add to my rental portfolio and earn 15 - 20 %
cash on cash returns quite easily before accounting for any appreciation and loan paydown... of course you have the headaches of managing tenants and maintenance issues, but even if you pay a 10 % management fee, the numbers are still a lot better than average stock returns.
Putting only 15 % down on a single family investment like that would get you
amazing cash on cash return plus then all you have to worry about is really the tenant themselves and not maintaining the property since it's a condo association.
Once I move out of my unit in the future, the rents will easily total over $ 3600 / month, exceeding the 1 % rule, cash - flowing $ 1260 / month, yielding a 60 %
pre-tax cash on cash return!
Though it's seductive to have a nice positive cash flow (
rental cash on cash return may be as high as 15 - 20 %), property management is risky business — not to mention that you're sitting on a lot of mortgage debt.
At the current moment, based on our findings, the DFW market
offers cash on cash returns of 5 - 6 % and internal rate of returns of 15 - 17 % for well located, recently built properties that employ a self management system with 20 % down payments.
When we analyze investment properties for acquisition daily, the projected before
tax cash on cash return for each property has to be at least 12 %.
Same here @Christopher Collins I would
use cash on cash return as well as dollar income per unit to evaluate whether to pursue a deal or not.
When running th enumbers to decide whether or not an investment will work, I insist on 15 %
cash on cash return + 20 % minimum total return
The total return would therefore be 31 % -35 % or a 155 % -175 %
cash on cash return on the down payment if you include my ~ $ 170,000 in remodeling costs.
Even though there may be additional tax benefits such as depreciation and deduction of interest payments, these are not part of the cap rate, cash flow, or
cash on cash return calculations.
Ask a lot of questions and get yourself comfortable with when to make offers, how to make offers, how to calculate cash flow, how to
calculate cash on cash returns, how to calculate cap rates, how to estimate ARV, etc..