How are our returns calculated?

[Zac Boelkow]

I am confused as to how to calculate my returns year after year. I understand that you divide your net profit for the year into the total amount invested. If I buy $100,000 rental, for cash, and net $5000 for the year that is a 5% return. Now if I put year ones net of $5000 in to the initial debt ($100,000) and net again another $5000 for the year does that mean I earned 5.3% for that year? ($5000/$95,000=0.0526)

The reason I ask this is because I am working a owner financing deal (10 years) and running an amortization schedule this is how it looks. 

Property cost is $165,000. He wants a $50,000 down payment. 4.875% interest on a 30 year term with a ten year balloon. My COC return is 5.5%. Hypothetically, If everything goes the way it should, in ten years I would refi the balance of roughly $90,000. I would also put down 25% and assume the mortgage is the same rate. I would still have some of the $50,000 left in the property but the new, ten year later, calculation comes up to be approx 21%...

Or am I just doomed to the 5.5% year after year and I am trying to funny calculations to justify buying this property? I just want to buy a property and its difficult lately so I am doing everything I can to be able to buy in this market.

Thanks!