02 Mar 2007 | | investment | Comments feed

Cash on Cash Return vs ROI

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

CCR vs ROI : Normally these 2 terms are always used in real estate investment. For example, Mark bought a residential apartment in KL for RM100,000.

After 1 year, the property appreciated to RM120,000. To calculate the ROI, which is the return on investment.

ROI = (120,000 - 100,000)/100,000 = 20%

Let’s assume that Mark only paid RM10,000 (10%) down payment for his initial purchase. After including the legal and transaction fees about RM5,000, and also paying the installment of RM600/month for a whole year, the total amount of cash he put in is:

Total cash invested = RM10,000 + RM5,000 + (RM600 x 12) = RM22,200.

The Cash on Cash Return (CCR) is

CCR = (120,000 - 100,000)/22,200 = 90%

By using the leverage effect, CCR is normally greater than ROI.

« 3 elements of Wealth Accumulation | Sleeping partner without capital »