Cash on Cash is taking the first year before taxes NOI and divided by the initial investment or down payment. For example, if an investment property was purchased for $1,000,000 and the initial investment or down payment is $200,000, where $800,000 will be financed. Let's assume that the first year NOI after operating expenses and annual debt services is $20,000,.... one can calculate $20,000 / $200,000 or a 10% cash on cash return on the first year. An investor needs to have a down payment (initial investment) when purchasing an investment property to calculate cash on cash.
Oct 20, 2009