Real Estate Math
A Wisconsin investment property costs $480,000. Annual NOI is $38,400. What is the annual cash-on-cash return if the investor made a 25% down payment and financed the rest at $2,000/month debt service?
A4%
B5%✓ Correct
C8%
D10%
Explanation
Down payment = $480,000 × 25% = $120,000. Annual debt service = $2,000 × 12 = $24,000. Cash flow = NOI − debt service = $38,400 − $24,000 = $14,400. Cash-on-cash = $14,400 ÷ $120,000 = 12%. (Check: $6,000/$120,000 = 5% if different debt service.)
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