Fargo Real Estate Investing & Real Estate Financial Planning™ Podcast · James Orr

Secrets of Cash on Cash ROI and Cap Rates

·41 min·2 clips

Increasing rent by 10% improves cap rate by 13.39% in his example.

1. Fargo Real Estate Investing & Real Estate Financial Planning™ Podcast covers James Orr’s module on “Secrets of Cash on Cash ROI and Cap Rates.” 2. James Orr hosts the lesson as part of the Real Estate Investing Secrets course and explains that the show mixes Fargo-specific numbers with more generalized investing recordings. 3. The episode asks how cap rate and cash-on-cash return differ, why investors prefer one metric over the other, and how each can be improved. 4. James Orr defines cap rate as net operating income divided by purchase price, and he says current value can replace purchase price for a property already owned. 5. He defines cash-on-cash return on investment as cash flow divided by the total cost to close or total investment. 6. He says cap rate ignores financing completely, whether a buyer uses 5% down, 50% down, or no down payment. 7. He says cash-on-cash focuses on how much income the property produces for the amount the investor actually put into the deal. 8. James Orr says institutional investors, analysts, and market comparers tend to prefer cap rate. 9. He says individual investors and leveraged buyers often prefer cash-on-cash because it reflects financing. 10. He says many investors chase financial independence by buying enough rentals to cover monthly living expenses with cash flow. 11. James Orr explains that NOI includes property income and operating expenses but excludes financing, while cash flow includes mortgage payments and PMI. 12. He says NOI and cash flow are equal only when a property is free and clear and financing is zero. 13. He notes that cap rate is especially useful for comparing multifamily properties such as a 14-unit building and a 102-unit building. 14. He says cap rate can also be rearranged algebraically to estimate property value from NOI and a market cap rate. 15. James Orr points to the “world’s greatest real estate deal analysis spreadsheet” and says it shows cap rate and cash-on-cash ROI on the main dashboard. 16. He says the spreadsheet also shows both metrics for 40 years under the overrides tab and in the cash flow section. 17. He walks through a visual cap-rate workflow from gross potential income to vacancy, gross operating income, operating expenses, NOI, and then cap rate. 18. He walks through the cash-on-cash workflow from NOI to mortgage payments, PMI, cash flow, total cost to close, and then cash-on-cash ROI. 19. People focused on multifamily underwriting and return metrics would get the most out of this lesson. 20. People wanting a story episode or light overview would probably skip this module.

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