October 2011
Beginner
442 pages
11h 49m
English
Investors, especially those investors looking for how much cash they are putting into their pocket, focus on their Cash-on-Cash return. This return is calculated by taking the Net Cash Flow, that is, the monies resulting from not only backing-out operating expenses but also reserves, and debt service as a percentage of the equity invested into the project.
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In our hypothetical example, the Net Cash Flow equals $401,413. The equity equals $8,311,500: that is, the project value of $15,961,500 (7 percent Cap Rate) less the existing loan balance of $7,650,000. Applying the applicable formula results in a Cash-on-Cash return of 4.83 percent ($401,413/$8,311,500).
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