Real Estate Math
A Hawaii rental property's purchase price is $850,000. Annual gross rent is $48,000 and operating expenses are $18,000. What is the cash-on-cash return if the buyer puts 25% down and the annual debt service is $22,000?
AA. 4.2%
BB. 3.76%✓ Correct
CC. 4.7%
DD. 2.4%
Explanation
Cash down = $850,000 × 25% = $212,500. NOI = $48,000 - $18,000 = $30,000. Annual cash flow = NOI - Debt service = $30,000 - $22,000 = $8,000. Cash-on-cash return = $8,000 / $212,500 = 3.76%.
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