Cash on Cash Return (CCR) is one of the most misunderstood and most misused metrics in real estate investing. Indeed, CCR can be quite misleading if taken out of context. Watch the video to find out more:
Ben!
Yes it’s a chilly 72 degree’s today down here in Florida….I’m still an Ohio boy at heart though…
My question is shouldn’t you calculate cash on cash returns AFTER you tally up all the income and expenses? So if after expenses you’re left with $1000 in cash flow and you put 10k in the deal, 10% is a fair assessment of what you can expect right?
What threw me was when you mentioned a 20 unit apartment would eat $1000 in cash flow in repairs, the repairs should be already factored in right? I know we talked about having other funds set aside to handle capital expenditures like on your 10 unit we looked at, but if you spent money up front to get the place going that would be factored into your initial cash on cash calculations right?
Keep the videos going!
V/R
TrevorHey, Trevor!
Dude – I will be in FL with you just as soon as I can. Freaking Ohio, man…
I don’t think I mentioned anything about $1,000 in expenses; if I did, it was my mistake. What I am saying is that $1,000/month of cash flow on an 20-unit apartment building means $50/month/door. Is that something you’d want to invest for?! My guideline had been $100/door fully financed. And lately I don’t even think that this is good enough any more.
So – let’s say you manage to buy a 20-unit with $12,000 out of pocket. If you show CF of $1,000/month ($12,000/annum), you are essentially showing 100% CCR. In this case, however, you’ve got nothing, since you’ll blow through that $50/door of CF like nobody’s business – Murphy’s Law. What drives the high CCR % in this case is not the strength of CF, but the low down-payment. This looks good on paper, but will absolutely kill you!
CCR is a dangerous metric to use decoupled from everything else… Makes sense?
Ben,
Makes sense, you hit the nail on the head with “decoupled from everything else” CCR is just one tool a person can use when looking at a property.
V/R
Trevori must say thanks a lot to you for sharing this informative video. keep it up keep posting like that.
Thanks indeed, Rohan!
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