Do you understand the difference between cash on cash (CoC) return and ROI?
Because CoC return is all about reliably/monthly earning a return. The mortgage, capex, maintenance, insurance, taxes and vacancy reserve are put into the equation:
Within the first year, I account for capital expenditures by fixing most everything and replacing old utilities with new. It’s bundled into the estimated rehab variable and divided by 10 years. Then, for internal rate of return calculations, I figure $500/unit/year after those first 10 (considering warranties last about that long).
This is my current and first property. Except, I naively got a 15-year mortgage instead of a 30-year. The bank just went with that choice. But hey, that’s why I’m looking for a mentor.
I was not previously familiar with the term cash-on-cash but it looks like you’re saying you can earn a 20% return if you use ~5:1 leverage. In that case, sure, but that’s a lot of leverage, and 20% is actually a pretty bad return at that much leverage. Historically, stocks would have returned about 40%.
I disagree, 20% is a damn fine return. Yes, the key is using leverage. (I doubt you assumed I was talking about buying properties with cash before.)
Do you do leverage trading? On first thought, it scares me not having any equity. If leverage trading gets nearly quadruple decent regular returns, why isn’t there EA discussion groups and such around that then? It seems significantly more risky.
Second, the link is about real estate investment trusts. There is various figures and statistics about macro-level trends, but nothing really about residential, self-storage or renting out commercial buildings. It discusses “investment properties” solely in terms of appreciation and REITs.
So what is the difference between CoC and ROI? Besides how CoC doesn’t factor in equity, CoC doesn’t account for appreciation. Therefore, ROI will usually be higher than the CoC return.
Do you understand the difference between cash on cash (CoC) return and ROI?
Because CoC return is all about reliably/monthly earning a return. The mortgage, capex, maintenance, insurance, taxes and vacancy reserve are put into the equation:
(income—costs—mortgage)/(down payment + closing costs + rehab)
Detail
=(((totalMonthlyRent*(1-vacancyReserve)-mortgage-monthlyMaintenance-annualInsurance/12-annualTaxes/12)*12)/(downPayment+closingCosts+inspectionReport+estRehab/10)
Within the first year, I account for capital expenditures by fixing most everything and replacing old utilities with new. It’s bundled into the estimated rehab variable and divided by 10 years. Then, for internal rate of return calculations, I figure $500/unit/year after those first 10 (considering warranties last about that long).
Example
=(((600*(1-0%)+600*(1-10%))-438-120-149-48)*12)/(19200+4047+500+9230/10)
= 18.7% monthly CoC return
This is my current and first property. Except, I naively got a 15-year mortgage instead of a 30-year. The bank just went with that choice. But hey, that’s why I’m looking for a mentor.
I was not previously familiar with the term cash-on-cash but it looks like you’re saying you can earn a 20% return if you use ~5:1 leverage. In that case, sure, but that’s a lot of leverage, and 20% is actually a pretty bad return at that much leverage. Historically, stocks would have returned about 40%.
I disagree, 20% is a damn fine return. Yes, the key is using leverage. (I doubt you assumed I was talking about buying properties with cash before.)
Do you do leverage trading? On first thought, it scares me not having any equity. If leverage trading gets nearly quadruple decent regular returns, why isn’t there EA discussion groups and such around that then? It seems significantly more risky.
Second, the link is about real estate investment trusts. There is various figures and statistics about macro-level trends, but nothing really about residential, self-storage or renting out commercial buildings. It discusses “investment properties” solely in terms of appreciation and REITs.
So what is the difference between CoC and ROI? Besides how CoC doesn’t factor in equity, CoC doesn’t account for appreciation. Therefore, ROI will usually be higher than the CoC return.