Bonus Investor Resources: How To Calculate a Cash-On-Cash Return When I first became active in real estate, and my obsession grew I asked my first mentor in real estate a very simple question.. “ Is there any way that I can mathematically tell if 1 rental property is better than another? ” .
At the time it seemed like a simple question that would have minimal impact but his answer helped shape the rest of my life.
After some begging on my part he taught me both how to calculate a CAP Rate “ Capitalization Rate ” , and most importantly a “ Cash-On-Cash Return ” .
Within minutes of learning this knowledge I became fully hooked and that very simple math formular still is the core focus that drives my investment strategies with real estate to this day more than 20 years later. Essentially what a Cash On Cash Return is, is how much money you actually invested in to ANY investment vehicle, and how much NET profit that investment pays you back annually in exchange for said investment. For example if a person invests $1 million in to any investment, be it real estate or otherwise, if at the end of the year the NET profit that investment generates is $200,000 then that would mean you are making a 20% Cash-On-Cash ROI (Return On Investment).
To get that percentage we divide our NET profits generated by the invested amount so in this case:
• Divide $200,000 by $1,000,000 and you ’ll see a result of 20% which is the annual percentage we are earning on our TOTAL cash investments!
To see a much more detailed explanation and video please go to the @VacationWealthPartners YouTube channel, with special videos explaining also how utilizing leverage when buying with seller finance can dramatically increase our overall NET Cash-On-Cash earnings by as much as 70 percent!
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