Cash-on-Cash Returns Explained [Full Breakdown]
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- čas přidán 3. 07. 2024
- Cash-on-Cash Returns Explained [Full Breakdown] // Many investors get into the real estate game for the income potential that real estate investing can provide, and when it comes to measuring that income, the projected cash-on-cash return is one of the best barometers out there for how a property might perform.
The cash-on-cash is one of the most heavily scrutinized return metrics in all of commercial real estate, alongside the IRR and the equity multiple. But similar to those two metrics, the cash-on-cash return has a few big nuances that are really important to consider, before relying on this figure within an investment analysis.
So to take this concept deeper than just the standard mathematical calculation, in this video, we'll walk through the details of the cash-on-cash return (in a real estate context, specifically), what this figure is actually telling us, and what should (and shouldn’t) be factored in when using this to analyze a deal.
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🕒 Timestamps 🕒
0:00 Introduction
1:01 What The Cash-on-Cash Measures
2:11 Positive vs. Negative Leverage
4:55 LTV Impacts
7:39 What NOT To Include
9:38 Where To Learn More
#realestateinvesting #commercialrealestateinvesting
*Nothing in this video should be construed as tax, legal, accounting, valuation, or financial advice or recommendation. All information in this video is intended solely for educational purposes, and you are advised to consult with your own personal professional advisors regarding your personal investment decisions.
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What other topics would you like to see covered on the channel in 2023?
here in Canada, we are seeing increasing office tower vacancies due to WFH patterns set in. Large offices are shrinking their footprint. On the other hand, there is a shortage of housing supply. This creates the opportunity to convert older office buildings into residential ones. Do you have any thoughts on analyzing deals for this conversion potential, which variables can make this risky or profitable? There may be acquisition opportunities for such non-performing assets in the near future.
@@pankajnalavde Great potential topic - thank you!
Thank you Austin for the cogent, crisp and clear explanations as always
Awesome. Thanks again. Learning a lot from the courses too.
You are amazingly smart with such a complex topics! Thank you for your videos.
Great video Justin. Loan constants are often overlooked.
This is one of the best videos about CoC. Thank you!
Amazing Justin!
Thanks brother love the videos
Great stuff, you've been really helpful with your rich educational materials in the past few years. Real estate is really addictive once you click with what needs be known. Thanks!
Book recommendations!
Some of mine are
Cash Flow and 36 other metrics
Multi family Millions
4 hour work week
Military House Hacking
Love it - thanks!
Even in an unlevered basis, cap rates are based on the purchase price and don't take into account any closing costs, fees, etc; and in the operations side don't take into account any capital improvements and cash reserves, while cash on cash do. Excellent video, Justin.
Thank you for your continued support, David! Happy New Year!
Love your videos and modelling classes Justin, keep up the great work. Quick question on IRR v. CoC......IRR obviously needs a future disposition in order to yield a useful metric. If you plug a very large hold period into the models, unlevered return becomes negative. Would you just use something like Stabilized Yield on Cost to assess the value of a deal in this situation or is there a better metric for properties with a long-term hold?
Just to clarify: when you say that "Just because the interest rate is lower than the cap rate, this does not mean that debt is accretive to returns," it is because you need to account for the amortization in the loan terms, which the Loan Constant takes in to account? However if the loan terms are interest only for a period, a comparison of cap rate to interest rate would be enough to determine positive and negative leverage?
Hey Samuel, exactly - very well said.
Can you Do more explanations of key metrics please 🙏
Great feedback - thank you!
Would you be able to make a video on a career as an appraiser/ valuation and advisory analyst? What’s the job like? How does it differ from careers in development, acquisitions, sales, etc? Compensation? Work/life balance? MAI designation?
For the number one example were you referring to the deal or market cap rate?
What’s difference between Loan Constant and All-In Rate? Is it debt service based on amortized (P&I) vs. interest-only?
Great video. Is that possible to share that excel document? 😊
what is the difference between EM and CoC?
Great stuff Justin! Any thoughts on a hotel proforma or a theme park proforma to keep things spicy?
Ha! I love the theme park idea - nothing planned for either at the moment, but very helpful feedback. Thanks!
IRR details I had been using it wrong.
Is there anyway we can get that calculator?!!:)
Hi Justin, thanks for this video! Loved it. How can I get on a call with you for mentorship purposes? If I pay the $99/month, does that get me a 30 minute call with you? Please let me know as I am going through a very serious interview. Thanks.
My head hurts... 🤣. Anyway you can dumb it down a bit?... like actually. I'm currently in the research phase of my STR journey. I've been looking all over YT for 2022/2023 videos utilizing AirDNA or Mashvisor to purchase a property, but it's been hard to find a good video explaining daily rates, cap rates, ROI, cash on cash, etc. and how they correlate to one another; limitations and other things to consider. I've seen IRR thrown around, but it's been difficult to wrap my head around how this correlates to the aforementioned- a very steep learning curve. I'm requesting a simplified version of an in-depth review of AirDNA and/or Mashvisor!!