Kris Krohn here with limitless TV and today we’re talking about on how you calculate your cash on cash returns. What is a cash on cash return? is it important to know what it is? In my world, it is the most important figure before I ever pull the trigger. Cash-on-cash return how do I calculate that? is it an important number? For me, it’s one of the most important ROI set I can calculate because if I put a dollar in I want to know, am I getting a dime back this year? If I put a dollar in am I getting a dollar back this year? And so this is the really big picture, its cash in versus vs cash out. on my return. So before I show you the example of a house let me just kind of put it to you this way, if I were to take a thousand dollars and put it in something in that same year, I get a hundred dollars. I still have my thousand dollar investment but it produced a hundred dollars for me. Then what is my cash on cash for the year? it’s ten percent. I mean ten percent on my money. If I put a thousand in and I get five hundred dollars back and I still have my principal in the investment, that is a fifty percent cash on cash return. That is a really hot cash on cash. A lot of the real estate that I do might cash on cash returns range from fifteen to thirty percent. That’s why a lot of people watch these videos, click the link below, and say, Kris I wanna partner with you I got a I got money sitting in a 401k or an IRA and man that sounds like you could easily outperform that. Let’s partner up and do something right? Well what I’m really sharing with you here is what’s called opportunity cost. We’re gonna break this down super simple because this was an economic principle that in college took me like two months to grasp but it’s actually really simple. The opportunity cost is what is the next best option I am foregoing based on my current one. Here’s an example. I put a thousand dollars in my savings account and my bank is giving me one percent. So I put one thousand in to the bank and they give me ten bucks at the end of the year. That’s a 1 percent return. That is not exciting inflation is somewhere between 3 and 4 percent so you’re losing 2 to 3 percent a year on your money. If you, by the way if you money’s not earning you 3 percent you’re just hitting breakeven. Everything becomes more expensive with time. Houses, goods, everything becomes more expensive. Commodities increase value. So first of all if you want to even think retirement you can’t afford to be thinking 401ks and IRAs because you’re sitting at 3%. You’re not even like keeping up with inflation in that scenario. Let’s apply this to real estate because that’s what we do. If I were to buy a house and let’s just say for a moment that this house has a value of $200,000. Let’s say that I could purchase this house for one hundred and sixty thousand dollars. That’s a 20% discount. That’s 20% of equity. The difference between these numbers 200 grand and 160? 160 is what I owe, it’s what I bought it for. $200,000 is what it’s worth. That’s a $40,000 equity position. But the bank says, hey sounds like you got a good deal here but you got to put 20% down. Okay what’s 20% on 16,000? Well it’s 16 times 2 is 32 thousand dollars. So if I put a down payment of $32,000 what I’m effectively gonna go owe on this property is somewhere around 128 thousand. Now that $32,000 isn’t gone it’s just a part of my equity position by 40 thousand dollars of equity plus my $32,000 down payment now makes 72 thousand dollars of equity. The house has a third paid off Now I have to ask myself, was this a good investment? I put cash in, I put in thirty two thousand dollars. Question is what are you giving me back? Let’s say that this house is producing a $400 month cash flow, it’s a lease option. And so I actually collected a down payment. I’m gonna make this a little more complicated watch one of my lease option videos if you want me to slow it down just there. If my, if I collect on my lease option a down payment from the tenant of $5,000 and they’re doing a two-year lease and then in addition to that I have a $400 a month cash flow. Now $400 for an entire years 4,800. So I’ve got 4,800 in year 1 and it’s a two-year lease. So guess what I have in year 2? 4,800 in year two. And that, we know that the $5,000 was a deposit non-refundable for two years. So if I add all of this up guess what it comes down to? It comes to fourteen thousand six hundred dollars. Now that is spread remember after over how many years? that’s spread over two years. If I just want to know what my annualized cash on cash is I would need to cut this in half which is going to be seven thousand three hundred dollars. If I put thirty two thousand dollars in, and I get seven thousand three hundred back? plus I stepped into forty thousand of equity. Let’s just find out what’s going on here. Well I got good news, that here represents a 22.8% ROI. I’m making 22 almost 23 percent on my money this year, 23 percent on my money next year, I walked into forty thousand dollars of equity and that’s what I’m doing here. I’m looking at, if I put 32 in and let’s say I’m getting back $7,300 then that’s what’s creating my cash on cash ROI which in this case is twenty 22.8%. If you’re gonna be a real estate investor this is math you need to know how to do. All I did was take this number, I divided it by the money I put in. Times it by a hundred to move from a percentage and it gave me the 22.8%. Simple math helping you understand what your cash on cash is. now how would you like for this number to be traded for an infinite return. That’s what’s coming your way. So here’s the big question, how do you actually calculate your cash on cash return if you don’t have any money in the deal? and I’ve been doing my deals like that for the last 15 years so even this week I’m getting another massive check. I didn’t put any money in. It’s an infinite return, it’s a massive gain for me. So what I’ll do is, if I can’t look at the money then I’ll actually look at the time. Most these deals I put in three four or five hours. So if I get a $20,000 check and I put in ten hours that’s $2,000 an hour. That’s what I love about getting to the pole of no-money-down that’s what really ends up being a huge game-changer in the world and game that I plan. This needs to be your goal in real estate because we’re all trained to think small. I need the money, I need the credit, I need the deal, no I’ve got the deals someone else has the credit someone else has the money and you can have all of it. And when you do your cash on cash return is super sexy because there’s only one way to write out that percentage and it’s this infinity loop which is super awesome. It’s taken over a decade to build a system where the type of cash on cash returns are available to me now than ever before. And guess what? you can get your hands on all of my deals at my next 3 day real estate wealth intensive event. All you got to do is click the link below, learn about it, and get a ticket, hop on out here and start accessing some of the very best investments in the world.