A Texas real estate investor analyzes a property with an asking price of $750,000, NOI of $52,500, and loan constants suggesting an annual debt service of $42,000 (on a $562,500 loan). What is the cash-on-cash return on the equity investment?

Explanation

Annual cash flow = NOI – Debt Service = $52,500 – $42,000 = $10,500. Equity investment (down payment) = $750,000 – $562,500 = $187,500. Cash-on-cash return = $10,500 / $187,500 = 5.6%. Hmm, that gives 5.6%, which matches option A. Let me re-check: $10,500 / $187,500 = 0.056 = 5.6%. Closest to option A (5.56%).