Cash on Cash Return
Posted by admin in Investment on May 27, 2011
Every investment is only as much worth as the return it generates for you. In every business, you have to evaluate profitability if you want to have any hopes of staying afloat. More importantly, you need to calculate the cash inflow for every investment you make. When it comes to real estate investment, one way of knowing the profit generated from a venture is to calculate the cash on cash return paercentage. The aim of this article is to present the cash on cash return formula for all those of you, who are new to this concept.
Of all the investments you will make in your lifetime, one of the most important ones is real estate investments. If you have bought a property, not as a home, but as a pure financial investment, you need to evaluate the cash return that it is generating for you. Cash on cash return is a ratio that will help you understand the profitability of any of your real estate investments. Let us see what cash on cash return as a real estate investment is in the next section.
What is Cash on Cash Return?
Simply put, cash on cash return is the ratio of the profit or cash flow generated by a property and the amount of net investment made in it, multiplied by 100. The cash flow or profit generated, which is used in its calculation, does not include taxes charged on the returns. That is, the profit considered is before taxes. Thus it is the percentage of cash that is recovered from your initial investment in a property.
This calculated ratio is mostly considered only a year after the purchase of a property. That is, it is only an estimate of the fresh profit generated a year after property purchase. It is not an accurate estimate for later years as it doesn’t take the time factor into consideration. A cash on cash return vs IRR (internal rate of return) comparison would reveal that the two concepts are quite different.
Most importantly, this ratio doesn’t consider the appreciation in price of property that may happen with time. Even though a property might be generating meager cash flow, its inherent worth might have increased with time. A cash on cash return percentage does not take this fact into consideration. Read the rest of this entry »
Buying Real Estate With No Money Down
Posted by admin in Investment on May 27, 2011
We all know that most of the funding for real estate transactions come from mortgage loans, as cash buyers are very rare. Most of the lending institutions require the borrower to arrange for a down payment (usually 20% of the purchase price), as a condition to secure the loan. So, an average home buyer has to make this payment and then, qualify for the home loan. In other words, you must have at least 20% of the purchase price, for securing a loan, to buy that property. Have you ever wondered about the possibility of buying real estate with no money down. Is it possible? Yes. You can go for real estate investment with no money down. This article deals with some ways for buying real estate with no money down.
‘No Money Down’ Concept
As mentioned above, borrowers have to make provision for down payments, in case of mortgage loans. Then, what is the meaning of no money down? Does it mean that you don’t have to make the down payment on a house? No. It denotes a down payment that is remitted with none of your money. In other words, the concept of ‘no money down’ simply refers to a down payment that can be made by money, which may be borrowed from friends or relatives or from a money lender. In short, you don’t have the money to make the down payment, but, you borrow it from other sources. So, the concept of ‘no money down’ actually deals with a down payment made with money obtained from other sources. It can also be termed as 100% financing, as you are home buying with none of your money. Now, let us take a look at the various ways of buying real estate with no money down.
How to Buy Real Estate With No Money Down
Now, you know that even if you resort to no money down concept, you have to make the down payment, but, with the money obtained from other sources. What are the other sources? Here are some tips and guidelines regarding the possible sources, from which you may obtain the money for down payment.
- One of the easiest way is to borrow the required amount from your friends or relatives. You can pay them back in installments.
- Another option for buying real estate with no money down is seller financing. The seller may agree to make the down payment, so as to sell the property as soon as possible. It may also happen that some sellers agree for a down payment, which is paid at slightly higher monthly payments.
- You may also take over the seller’s existing financing as part of the purchase price for buying commercial property with no money down. In other words, you can buy the property in return of making the mortgage payments of the seller, regarding the concerned property. Read the rest of this entry »