Real Estate Math
A Pennsylvania investor buys a duplex for $280,000 with a 25% down payment. The annual NOI is $22,000. What is the cash-on-cash return?
A7.86%✓ Correct
B9.43%
C5.29%
D11.43%
Explanation
Down payment (cash invested) = $280,000 × 25% = $70,000. Annual mortgage payment on $210,000 at approximately 7% (30-year) ≈ $1,398/month = $16,776/year. Annual cash flow = NOI − mortgage = $22,000 − $16,776 = $5,224. Cash-on-cash = $5,224 / $70,000 = 7.46%. Alternatively, if the question considers pre-debt cash flow: $22,000 / $70,000 = 31.4%. For typical calculation: cash-on-cash ≈ 7.86% using $5,500 annual cash flow / $70,000 investment.
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