Cash on cash plus Equity build-up

[Ron Vered]

Hello,

Real-estate investors benefit from their investment with cash-flow and with the build-up in equity. However, it seems people look at cash-on-cash return but ignore equity build-up. This seems logical if you look at a few years, but after >= 10 years, it seems wrong to ignore the effect of appreciation.

Some areas exhibit more growth then others, so it seems there should be a more complete metric.

A real-estate investment professional has showed me (among other things) the metric which was named "Cash on cash with equity build-up". It is calculated in a similar way to plain CoC:

CoC w/ Equity = (Net cash-flow + Equity increase) / Initial investment

Where Equity increase is the only new term which is: (i) the increase in property value (est.) (ii) the reduction in loan balance.

This can be estimated for a few years ahead to show a trend. Of course, term (i) is a guess, but could be done conservatively.

Q1: Is this metric usable? If not, what do you use instead?

Q2: Can I compare this metric to an interest rate I get from an alternative investment?

Thank you!

Ron.