Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 54%
$32.50 /mo
$390 billed annualy
MONTHLY
$69 /mo
billed monthly
7 day free trial. Cancel anytime
×
Take Your Forum Experience
to the Next Level
Create a free account and join over 3 million investors sharing
their journeys and helping each other succeed.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
Already a member?  Login here
Real Estate Deal Analysis & Advice
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated almost 7 years ago on . Most recent reply

User Stats

11
Posts
12
Votes
Nicholas Layton
12
Votes |
11
Posts

Why so much emphasis on Cash on Cash return?

Nicholas Layton
Posted

I always see people looking for a specific number for their cash on cash return. For example, Brandon likes 12% or higher, and he calculates this by taking the annual cashflow divided by the cash that is invested.

My question is, why ignore the equity that is building in the property? Doesn't that matter? You're not just making cashflow, your renters are also buying you equity that you can later access when you sell the property or do another cash out refinance.

In the 1st year alone with 5% APR on a 30-year mortgage for $100,000 you're not just getting that $2,400-ish cashflow, you're also getting $1,475 in equity, and that only increases every year. Why do I never see anyone taking this into account?

Most Popular Reply

User Stats

1,111
Posts
1,109
Votes
Nick B.
  • Investor
  • North Richland Hills, TX
1,109
Votes |
1,111
Posts
Nick B.
  • Investor
  • North Richland Hills, TX
Replied

Cash flow pays bills. You can live on it if you have big enough portfolio. Equity does not pay bills unless you sell or refinance. In which case it's a one time event and no future income.

Let's suppose you have no other income. Would you rather have $100K/year cash flow and no equity growth or $100K/year equity growth and no cash flow? 

Loading replies...