In the second year of owning the property discussed in example #3, let’s assume rents are increased by 10%, resulting in a 15% increase to net cash flow. Note that in this example you don’t add the $4,000 capital expense to the denominator because you covered the cost out of cash flow, not new equity. The property in the above example #3 needs a new HVAC system, total cost $4,000. Property purchased for $50,000 down with $10,000 annual cash flow after debt service : $10,000 / $50,000 = 20% cash-on-cash return. Now, let’s look at five examples of how cash-on-cash returns are calculated in different real estate investment scenarios : Example #1 5 examples of how to use a cash-on-cash return So, $2,700 is your annual cash flow and 2.7% is your (somewhat shabby) cash-on-cash return. According to the current rate is about 2.7% and you’d receive $2,700 each year. Let’s say you deposit that same $100,000 in a CD. Here’s another way to think about CoC compared to cash flow. Cash-on-cash tells you what kind of return you’re receiving for the total amount invested (acquisition equity plus subsequent equity infusions).
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