Hello all!

So I've reviewed several real estate discussions, but rarely have I seen any mention of these two investing metrics- *Cash on Cash Return* & *Return on Unrealized Capital Gain*. Real estate investing is ALL numbers and every single real estate deal can be measured by its cash on cash return and return on unrealized capital gain. That's it. Nothing else is needed.

Just wanted to take a minute to explain these two terms using this example:

3 Bedroom, 2 Bath, 2 Car Garage Purchased with 20% Down, 30 Year Mortgage, 6% Interest

Market Value = $100,000

Repairs= $10,000

Closing Costs = $5,000

Purchase Price= $70,000

Down Payment (20%)= $14,000

*Total Cash out of Pocket= Down Payment + Closing Costs + Repairs*

Total Cash out of Pocket= $29,000

Rent= $1300

Principal/Interest= $336

Property Taxes (3.5%)= $292

Insurance (1.7%)= $142

Monthly Cash Flow= $530

**Cash on Cash Return = Annual Net Cash Flow / Total Cash out of Pocket **

**Cash on Cash Return= ($530*12) / $29,000**

Cash on Cash Return=22%

*Unrealized Capital Gain = Market Value - (Purchase Price + Closing Costs + Repairs)*

Unrealized Capital Gain = $100,000 - ($70,000 + $5,000 + $10,000)

Unrealized Capital Gain = $15,000

**Return on Unrealized Capital Gain = Unrealized Capital Gain / Total Cash out of Pocket**

Return on Unrealized Capital Gain = $15,000 / $29,000

Return on Unrealized Capital Gain = 51%

Now this is a great deal. We just used $29,000 to generate an annual return of $21,360, or 73%. That's all legal tax-free income by the way. We nearly doubled our net worth in one year, and more importantly gave ourselves a $6000/year raise, leaping us that much closer to financial freedom.

So, if you need to evaluate a future deal, just break it down by *cash on cash return* and *return on unrealized capital gain*. It's much easier to analyze a deal with those two metrics.

Hope this helps! Be sure to check out my site for much more on this topic and others related.

[MOD EDIT: Spam link removed.]