Cash an Cash ROI vs Annualized Total Returns

[David Boley]

Hello! I'm playing around with the BP rental calculator and I'm trying to understand the table. 

I'm curious about:

1) What does the changing Cash on Cash ROI tell me over the years?

2) How does COCROI differ from the Annualized Total Return (e.g. how do I use it?)?

3) At year 30, how can I make a $460k profit on a house that's valued at $240k?

4) I'm trying to do the math to understand each of the numbers, but I can't get the calculation for the "total profit if sold" correct. Any tips?

Sorry, that's a lot of questions. Any help would be much appreciated!

David

[Account Closed]

Hey David, good questions.

1) The changing cash-on-cash ROI tells you your cash flow for each of these years as a percentage of your total equity invested in the deal. This grows significantly over time as your revenue increases, your expenses increase (but likely not by as much as your revenue), and your mortgage payments stay the same assuming you have the same loan on the property this entire time.

2) Your Annualized Total Return takes into account your sale proceeds (and any cash-out refinance proceeds if applicable) to come up with an annualized rate of return for the entire life of the deal. So while the cash-on-cash is literally cash in your pocket every year, the annualized total return is your annualized rate of return over the life of the investment when you sell a deal. You can think of this as comparable with the overall returns of the stock market, whereas the cash-on-cash is more comparable with dividend or bond yields.

3) This includes the cash flow you've received throughout your entire 30 year hold period.

4) I believe this is as a result of what I mentioned in #3 - including cash flow for each year of the hold period.

Hopefully this helps!