Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Buying & Selling Real Estate
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated over 5 years ago on . Most recent reply

User Stats

1
Posts
0
Votes
Duncan Milne
0
Votes |
1
Posts

HELOC included in Investment basis for ROI and COC?

Duncan Milne
Posted

When financing a portion of a down payment using a Home Equity Line of Credit, should the credit portion of the down payment be included in your investment basis for the purposes of calculating COC and ROI?

A simple example:

You're purchasing a house for $500,000 with a 20% down payment.  Of the $100,000 down payment, $80,000 is coming from a HELOC, and $20,000 is coming from your pocket.

Annual income from rent is $60,000, expenses are $30,000, making your annual Net Operating Income $30,000.  You then pay another $20,000 in debt servicing for your mortgage and $5,000 in debt servicing to your HELOC, making your Operating Cash Flow $5,000 annually.

When calculating the Cash on Cash Return (OCF/Investment Basis) and Total ROI ((OCF + Equity)/Investment Basis), should we be using the total down payment amount of $100,000 or just the cash portion of $20,000 as the denominator?

Option A:

COC= $5,000/$100,000 = 5%

ROI= ($5,000 + $15,000 accrued equity)/$100,000 = 20%

Option B:

COC= $5,000/$20,000 = 25%

ROI= ($5,000 + $15,000 accrued equity)/$20,000= 100% 

Since the debt portion of $80,000 is being accounted for in-year through the OCF calculation, would we not be double counting it if we include it in the Investment Basis as well? 

Loading replies...