Understanding ROI Rate on Loan Purchase (ROI Cash on Cash Rate)All Cash Purchase

ROI Cash on Cash rate is a real estate metric used to estimate the total return i.e. the Net Income + Appreciation (i.e. Price Growth) on the cash invested in a property.

Unlike ROI rate, which measures return in an all cash purchase, here we must take into account the mortgage payment. That reduces the annual cash flow from the property. However, since the investor has put in less cash upfront (due to the loan), the ROI cash-on-cash return is often higher than the ROI rate.

Note: price appreciation projection is based on past history. It is calculated by dividing the property's net operating income (NOI) by its purchase price. The gross income from the property is the money earned from rent. The net operating income is the gross income minus expenses like property tax, insurance, property management fee, money set aside for maintenance, etc. A higher ROI rate generally indicates higher returns but may also imply higher risk.

• Cash Invested = Down payment + Closing Costs
• Gross Income = Monthly Rent × 12
• Expenses = Property Tax + Home Insurance + Maintenance + Vacancy Loss + Property Management
• Net Operating Income (NOI) = Gross Income − Expenses
• Total Return = NOI + Annual Price Growth − Annual Mortgage Payments
• ROI Cash-on-cash Rate = Total Return ÷ Price