So some of are wondering how is the “Average Annual Return” calculated.
In the example on “Cash on Cash” return…we calculated this based on annual return on the monies invested, yet on the line below it, it shows a much higher “Average Annual Return”
This is calculated by taking into account the profit that is made upon sale of the property combined with the regular monthly cash flow. As an investor in one of our projects you also get a portion of the equity when the property is sold.
When the cash flow is added together with the profits from the sale we get the “Average Annual Return”
Lets look at the example below, key areas are highlighted in yellow:
In this example:
1.) We are selling the property afer 5 years.
2.) Sale price at an “8 Cap” is $1,255,665
3.) Net proceeds after sale and loan repayment is $334,348 split 50/50 with the members,
4.) when all quarterly distributions and distribution profits from the sale are annualized, you come with the Annual rate of return which is higher than the regular “Cash on Cash” returns.
I hope this helps…let me know if i can answer any addition questions regarding this.
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