Real Estate Math
An Illinois investor buys a property for $225,000 with $45,000 down. Annual NOI is $18,000 and annual mortgage payments are $11,400. What is the cash-on-cash return?
A8%
B14.7%
C14.67%✓ Correct
D40%
Explanation
Cash flow = NOI - Mortgage Payments = $18,000 - $11,400 = $6,600. Cash-on-cash return = Annual Cash Flow ÷ Cash Invested = $6,600 ÷ $45,000 = 0.1467 = 14.67%. Cash-on-cash return measures the annual return on the actual cash invested (down payment), making it useful for comparing leveraged investments. It focuses on actual cash flow, not total return.
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