Going from 17% to 34% CoC ROI - Am I missing something?

[Pawan W.]

A rental property I bought last year and just getting refinanced. Here are the numbers for before and after. If I am to remove the vacacy and maintenance factor (considering the lease is for 2 years and I have a home warranty that the tenant pays deductible for - the ROI shoots up to 45%)

Initial Purchase	Post Refinance
Purchase Price	$ 105,000	Appraised For	$ 144,000
Paid at Settlement	$ 34,000	Cash Out	$ 26,060
Updates	$ 9,000
Total Cash Investment	$ 43,000	Post Refi Cash Investment	$ 16,940
Rent	$ 1,450	Rent	$ 1,450
PITI	$ 600	PITI	$ 741
HOA	$ 35	HOA	$ 35
Vacancy and Maintenance	$ 145	Vacancy and Maintenance	$ 145
Expenses	$ 780	Expenses	$ 921
Monthly Cash Flow	$ 670	Monthly Cash Flow	$ 529
Yearly CF	$ 8,040	Yearly CF	$ 6,350
Less Home Warranty	$ 529	Less Home Warranty	$ 529
NET Yearly Cash Flow	$ 7,511	NET Yearly Cash Flow	$ 5,821
CoC ROI	17%	CoC ROI	34%

Am I missing something here? Would you say this is an exception or typically achievable? With these kind of returns who needs to invest in stock market! (I understand diversification)

[Carter M.]

@Ned Carey

Hi Ned, 

The $26K doesn't originate from the debt, it comes out of the increased value of the property. It's basically a dividend paid out of equity. Re-financing is just the method used to unlock some of the appreciation in value.

You are right that we can only calculate IRR when an investment has been liquidated. But we can calculate ROI during any period (year) or cumulatively over the lifetime of an investment, and the geometric rate of return will equal the IRR at the end of the investment.

I'm impressed by the return Pawan has made on this investment. Not the kind of numbers I've been seeing here in Los Angeles, but if anyone can teach me where to look, I'd be grateful...