1031 Exchange What is Your Down Payment After Profit Called

[Kim Hopkins]

This is a confusing question. Let's say I put down $100,000 into a property which I then sell a few years later for $150,000. Now let's say I 1031 that into a new property with a total down payment of $225,000. If I'm calculating my cash on cash, the technical definition would be the cash flow divided by the $225,000. 

However, I also think it's worth calculating my cash on cash based on the total cash I actually put down (took out of my pocket). Call that "Adjusted Down".  In this case, that would be the original $100,000 plus the additional $75,000 (=$225k-$150k) I needed for the new deal for a total of $175,000 in Adjusted Down. 

It make more sense to me to calculated the cash on cash using this Adjusted Down of $175,000 in the denominator (vs the $225,000) since the $50,000 I threw into the new deal as profit from the old one gives me an infinite return. 

Does this make sense to anyone else? Does this "Adjusted Down" number have a name? 

Thanks and sorry if I caused you brain pain.

Kim

[Greg Dickerson]

@Kim Hopkins all the cash invested is used to calculate returns regardless of where it came from or when. It’s still cash that’s tied up in the deal.

If you refinance all of your cash out of the deal and keep the property then your return moving forward would be infinite.