Cash on Cash Return 27.76%! In CT!
Purchase price: $55,000
Repair Cost: $11,000
ARV (based on cap rate): $183,000. (Keep in mind, comps would never justify this figure, but I Wanted to insert just to show the income value) In this town, there are very few MFR's.
Cash on Cash Return: 27.76%
Purchase Cap Rate: 30.31%
Monthly Expenses (See below): $1,348
Monthly Cash Flow: $1,527
Annual Income: $18,322 AMAZING!!
| Vacancy: | $143.75 | Repairs: | $143.75 |
| CapEx: | $287.50 | Electricity: | $200.00 |
| Insurance: | $142.00 | Property Taxes: | $306.17 |
| Oil: | $125.00 |
Connecticut Multi family. 2% rule and then some! A truly great one. I am so grateful for the relationship I built with the seller, as well as some great tenants who help keep this property providing huge rate of return for my portfolio. Thanks BP for the mortgage calculator!!
Most Popular Reply
#2 General Landlording & Rental Properties Contributor
Since the calculator does not include these numbers I will add additional info you have not included.
Assuming you did a cash purchase and reno and the place is worth $160K (your estimate) you have a pile of cash lying dead that has a direct impact on the "actual" return on the property which is not the same thing as return on investment. Every income property has two separate income streams based on a investors assessment of the opportunity value of cash. Most would conservatively value cash at 10%. The greater the equity the more of the income is generated by the cash and therefor the less by the property itself. When the equity reaches a certain level the property itself no longer is generating any income as it is all attributed first to the return on equity. In effect owning the actual property becomes a negative asset.
Breaking down your property based on your posted cash flow of $1,527.
$1,333 of that cash flow is attributed to the equity of $160,000 with a opportunity value of 10%. That leaves a positive cash flow generated by the property of $194/month. This is not a stellar cash flow on a multi because you have far too much equity lying dead in the property.
Your profit margins would be far superior if you refinanced to the maximum and reinvested your equity across multiple properties as opposed to killing the cash flow on this one property by leaving your cash dead and buried.
Many investors prefer to ignore opportunity value of cash, in essence maintaining it has no value in itself, as a way to show higher returns on a property. It is extremely important that investors appreciate how to value cash if they are accurately going to assess a real return on their properties. Investors that truly value cash prefer leverage knowing that equity kills cash flow and cash must earn it's keep.
Your investment is positive but to be steller you are forced to assume equity has zero value.