What is Cash on Cash?

[Travis Houston]

If an investor tells me, as a wholesaler that their rental Criteria is 15% cash on cash or 75% rule, what does that mean?

[Audrey Ezeh]

Hi Travis, cash on cash is return on your investment. If you invest 100k and net 115k after expenses,  you made a 15% return on your money. 

75% rule (sometimes 70% rule or 65% or 80% ...you get the idea...everyone does something a bit different depending on the area and class of property) : If a property is worth 100k after it is all fixed up i.e the after repair value (ARV), then an investor that subscribes to the 75% rule will pay 75% of the ARV minus the rehab costs. So if it will take 10k to fix it up then the investor will pay 65k for it (75k-10k).

So if you are looking to wholesale the property and you want to make 5k then you will offer the seller 60k knowing that your investor will want to pay only 65k for it and you pocket the 5k as your assignment fee. 

The more expensive the property the better these rules work. 70% rule on a 30k house does not leave you very much room for a robust profit if you do the math. 

Hope this helps. I will try and dig around for some articles that explain these concepts well and I will be back to post them. Welcome to BP and stick around these forums, there is a lot to learn :) Also try and attend Brandon Turner's webinars and listen to the weekly podcasts as well. You will be off and running in no time :)