Cash on Cash Returns what is it...and how good does it get?

At www.EZKeyRealEstate.com one of the most common methods we have for measuring the success or viablility of our investors choice of house / investment is Cash on Cash return. Cash on Cash Return is a percentage that measures the return on cash invested in an income producing property. It is calculated by dividing before-tax cash flow by the amount of cash invested (down payment amount) and is expressed as a percentage. Our larger packages of properties are around 1 million in value for 10-16 homes, fully renovated, 100% occupied with a 12 month cash flow guarantee. We sell the packages at 70-80% of current value and owner finance 90% of the rest. Here is a similar example:
If before-tax cash flow for an investment property is equal to $15,000 and our cash invested in the property is $100,000, cash on cash return is equal to 15%.


Before-Tax Cash Flow $15,000
Cash on Cash Return = ------------------------------ X 100 = 15%
Cash Invested $100,000

The following shows how before-tax cash flow is derived.

Gross Income 54,500
Less Vacancy Amount 2,500
Gross Operating Income 52,000
Less Operating Expenses 17,000
Net Operating Income 35,000
Less Annual Debt Service 20,000
Before-Tax Cash Flow 15,000

The Cash on Cash Return is used to evaluate the profitability of income producing properties. It is an important analysis tool when comparing multiple income properties. The investor should rank income properties based on their potential return on investment and the cash on cash return should be given a strong weighting. However, the cash on cash return calculation does have some limitations. It is a before tax calculation and doesn't include the impact of an investor's tax bracket on their returns. Also, it doesn't consider the wealth building potential of a property via appreciation. A property in one area of a city may have a better cash on cash return then a property in another location, but it may not appreciate as fast because of it's location. One location may be more desirable than the other. The investor should look at a property's cash on cash return and the potential for appreciation when determining which income property to purchase.

Our larger packages boast up to 30%+ Cash on Cash return. This means someone can buy 10-16 homes at $0.70-$0.80 cents on the dollar fully rehabbed, with 100% occupancy guaranteed for the first year. 10% downpayment is all that is required, and with 30% returns cash on cash, you will have paid off your total cash investment in less that 3 years. At which point you will own a portfolio worth over 1 million dollars, with zero money invested, great cash flow, and plenty of reason to buy more. Check out our listing at http://www.ezkeyre.com and let us build a package that suits your needs. Click here to see a virtual tour of a 10 pack...
www.listingsmagic.com/9425

Happy house hunting.
Erik