§ 01
Cash-on-Cash Return = Annual Cash Flow / Equity Invested
§ 02
| Scenario | All-Cash Purchase | 75% LTV Leveraged |
|---|---|---|
| Property value | $1M | $1M |
| Equity invested | $1M | $250K |
| NOI | $60K | $60K |
| Debt service | $0 | $35K |
| Cash flow | $60K (6% return) | $25K (10% return on equity) |
| If value rises 10% | 10% equity gain | 40% equity gain (4x leverage) |
| If value falls 10% | 10% equity loss | 40% equity loss |
§ 03
Leverage is a double-edged sword. At 75% LTV, a 25% property value decline wipes out ALL equity. This is exactly what happened to millions of homeowners in 2008–2009.
§ 04
Calculate the leveraged vs. unleveraged return for a property. Notice how leverage amplifies the return in both directions.
§ 05
You buy a property for $1M with $200K down (80% LTV). The property drops 25% to $750K. What’s your equity position?
§ 06
§ 07
You own a $1M rental property with a $700K mortgage, producing $60K annual NOI, $40K annual mortgage payment. Equity cash-on-cash return is ~7% ($20K/$300K equity). Home prices are flat. Total return if property value stays flat?
Five questions · AI feedback
Sit with the ideas.
A REIT acquires a $50M office tower with $35M in debt at 6% and $15M in equity. NOI is $3.5M. What is the unlevered yield, cash-on-cash return, and DSCR?
Why: