A Kentucky investment property costs $320,000. The investor makes a 20% down payment and finances the rest. Annual NOI is $27,200. What is the cash-on-cash return on the equity invested?

Explanation

Down payment (equity): $320,000 x 20% = $64,000. Note: Cash-on-cash return uses cash flow (not NOI) over equity. But if we use NOI / Equity: $27,200 / $64,000 = 42.5%. However, the true cap rate is $27,200 / $320,000 = 8.5%. The question asks for return on equity invested using NOI, which is 42.5% — but the most commonly tested metric here is cap rate = 8.5%.