Cash on cash return for BRRR commercial property. (how to calc?)

[Steven Haller]

I am reviewing a property analysis my syndicator sent over. The Cash on cash return is calculated on the cash left in deal after refi, and not on the total cash used to buy and repair the property. Is this the correct way to calculate the cash on cash return?

Deal specifics:

• Total project cost: $1,260,000
• HM loan (approx: 75% of deal)
• Investors cash: $360k (split 3 way $120k each investor)
• Projected refi loan amount $1,250,000
• Projected Total Investors cash in deal after refi: $110,000
• Projected Total Net income (after mortage) post refi: $53k
• Investors will all own their share in the building minus 20% for the managing member's sweat equity. (this leaves us each with 26.6% of the net after mortgage above)

The deal was presented as having a cash on cash return of 39%

[Projected Total Net income] - [20% sweat equity] / [cash left in deal]

As an investor putting in $120k, I can expect to have $36k left in the deal post refi. Granted, the cash on cash would be 39% on the 36k, but what about the total 120k I put in and held in the deal before refi. It seems I would have to wait about 6 years to realize a 10% total return on investment.

• Year 1: 120k in deal (refi after year 1)
• Year 2: 36k in deal (first year of net income, aprox 14k/yr)
• Year 3: 22.4k in deal
• Year 4: 8.2k in deal
• Year 5: 6k total profit thus far (finally broke even)
• Year 6: 20k total profit

At this point I have made approximately 10% on all the money I have had in the deal in the past. (YEAR 1 cash in deal + year 2 cash left in deal....etc.)

Is the above the correct way to look at this investment?

It doesn't seem like a very good deal especially in the short term. I can obviously wait and wait, and after I year 5 when I have been completely paid back every year thereafter the ROI goes up, but this does seem like a long time to wait for a return.