Cash on Cash and other simple formulas Norair Yeretsian
May 19, 2010
The following are a few simple formulas we use with income producing
real estate. They are easy and you could do them anywhere in a coffee
shop for example on a napkin or on the back of an envelope.
And if the property you are considering passes these simple qualifiers,
then you take it to the next step…to be discussed in future commentary.
You will need a simple financial worksheet on the property before you start.
However , below are the formulas. On the next blog session ,
I will draft a simple financial worksheet and illustrate how the numbers work .
Cash on Cash = CFBT/initial investment
Payback Period = Equity / CFBT
Break Even Ratio = (operating expenses + debt services) / gross operating income
Gross Income Multiplier (GIM) = Sale Price / gross operating income
Overall capitalization rate (OCR) = Net Operating Income / Value
Equity Capitalization Rate (ECR) = CFBT / Equity
Cash Flow Before Tax (CFBT) = Net Operating Income (NOI) - Annual Debt Service (ADS)
If you have other interesting simple formula that works for you, kindly share it with us…
nyeretsian@yahoo.com May 19, 2010
