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Updated over 2 years ago on . Most recent reply

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Cash On Cash Return...Or, should I use another metric?

Everett Stephens
Posted

Greetings -- Thanks much in advance for your consideration. Measuring Cash On Cash returns is a go-to benchmark for me. However, it doesn't seem to make sense in the case of a cash-out refi when there's sufficient equity to take your initial actual cash investment completely out. For example: What investment ROI metric should I use when:

1. We acquire a rental property for $80,000. 2. We invest $25,000 for rehab.  3. The rehabbed property appraises for $160,000. 4. The bank is willing to finance 80% of the appraised value up to $128,000. 5. We refi for $105,000 essentially zeroing out our cash investment.  In this example, our Cash Investment is ultimately zeroed out. As such, how do you measure a Cash On Cash Return when the Initial Investment is, more or less, zero, but still results in a positive annual cash flow of around $5,000.00? Thanks much for helping me think through this...I feel like Captain Obvious is about to deliver me some tuition.  :) I'm OK with that....

Most Popular Reply

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232
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Scott Sklare
  • Real Estate Broker
  • Beloit, WI
60
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232
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Scott Sklare
  • Real Estate Broker
  • Beloit, WI
Replied

Your cash on cash is infinite. That is what makes BRRRR so amazing.

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