Real Estate Math
A Massachusetts investment property is purchased for $650,000. The investor uses 25% equity and finances 75%. Annual mortgage payments are $39,000 and NOI is $52,000. The cash-on-cash return is approximately:
A6.0%
B8.0%
C10.0%✓ Correct
D12.3%
Explanation
Equity invested = $650,000 × 25% = $162,500. Annual cash flow before tax = NOI − mortgage payments = $52,000 − $39,000 = $13,000. Cash-on-cash return = $13,000 / $162,500 = 8.0%.08 = 8.0%. The correct answer is 8.0%.
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