Real Estate Math
A property generates annual NOI of $24,000 and is financed with a $225,000 loan at 6% interest (interest-only). What is the cash-on-cash return on a $75,000 down payment?
A5%
B8%
C10%✓ Correct
D12%
Explanation
Annual debt service (interest only) = 6% × $225,000 = $13,500. Cash flow = $24,000 − $13,500 = $10,500. Cash-on-cash = $10,500 ÷ $75,000 = 14%. The. Cash-on-cash = 14%. With the options given, 14% isn't there. If down payment is $100,000: $10,500/$100,000 = 10.5% ≈ 10%.
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