Calculating Cash-on-Cash for BRRRRs

[Jason Kenney]

Can anyone provide any guidance on calculating the cash-on-cash for a BRRRR?

If the property generates no cash flow until after the refinance, is it correct to use the 'Cash-out-Refi Amount' as essentially the cash inflow?

Based on the example below, is the cash-on-cash calculation correct?

Thank you!

ARV = $200,000
Cash-out-Refi Amount (75% LTV) = $150,000
Purchase Price = $90,000
Rehab Costs = $30,000
Closing Costs (4%) = $4,000
Carrying Costs (3 months) = $5,000

$150,000 - $129,000 / $129,000 = 16%

[Andrew Postell]

@Jason Kenney the concept of "cash-on-cash" returns is basically "How much money do I get from investing a certain amount of money".

So in your example above, your "cash-on-cash" return is infinity.  You have no money in the deal.  Since you invested no money (you got it all back), the formula would not work properly.  So use $1 as your "initial investment" and then it will show a little better. 

Also, keep in mind that you are neglecting 2 things from your true "cash on cash" formula - and those 2 things come into play when you SELL your asset.   So let assume you do invest $1, you have NO cash flow, and sell in 5 years.  You would want to calculate an appropriate amount of appreciation, and then calculate your "principle pay down" from the mortgage being paid.  The difference would be your equity position.  Now, when you sell you do have some closing costs, so subtract those out, and that will give you are true cash-on-cash return.

I hope all of that makes sense.  There's a quick picture of the calculator I created many years ago: