Cash on Cash returns?

[Jack Lee]

I was wondering if you guys include principal deduction as part of the cash on cash return calculations. I mean the equity is yours and will be able to cash out upon sale.

[Nathan Emmert]

Jack, equity is paper wealth... it tends to be ignored in the CoC.

The only way it could be included would be to continuously do reappraisals and then figure in the expense it would take to liquidate it. If you pay down $100 of your mortgage but your house depreciated 1% in that month and it would cost you 10% of the sales price to sell the house... did you make out or lose? Well, depends how much the house was worth, but you get the idea.

Principle pay down helps your net worth... free cash flow (or CoC) helps your income.