Newport News Real Estate Investing & Real Estate Financial Planning™ Podcast · James Orr

Secrets of Cash on Cash ROI and Cap Rates

·41 min·2 clips

A 10% rent increase improves cap rate by 13.39%, while a 10% vacancy reduction improves it by only 0.4%.

1. Newport News Real Estate Investing & Real Estate Financial Planning™ Podcast covers the secrets of cash on cash ROI and cap rates. 2. James Orr hosts the Real Estate Investing Secrets course and explains the formulas in a numbers-specific way. 3. The episode asks whether cap rate or cash on cash ROI is the better way to judge a real estate deal. 4. Orr defines cap rate as net operating income divided by purchase price, and says current value can replace purchase price for an owned property. 5. Orr defines cash on cash ROI as cash flow divided by total cost to close or total investment. 6. He says cap rate ignores financing completely, while cash on cash includes mortgage payments and PMI. 7. Orr says institutional investors and analysts often prefer cap rate for comparing properties across markets. 8. He says individual investors often prefer cash on cash because it reflects leverage and actual cash invested. 9. Orr notes that NOI and cash flow both include rent, vacancy, insurance, maintenance, and property management, but only cash flow includes financing. 10. He says NOI and cash flow are equal only on a free-and-clear property. 11. Orr walks through how the spreadsheet calculates gross potential income, gross operating income, NOI, and cap rate. 12. He says gross potential income comes from rent and other income, including laundry or storage income. 13. He says operating expenses can include taxes, insurance, HOA fees, landlord-paid utilities, maintenance, and property management. 14. Orr explains that cash flow is NOI minus mortgage payments and PMI. 15. He shows that cap rate can be rearranged to estimate property value from NOI and a market cap rate. 16. Orr says the spreadsheet displays cash on cash ROI and cap rate for years 1 through 5 and, in overrides, for 40 years. 17. He presents a sensitivity table that tests how 10% changes in inputs affect cap rate. 18. He says a 10% rent increase changes cap rate far more than a 10% reduction in vacancy, taxes, insurance, or maintenance. 19. The tone is instructional, spreadsheet-driven, and focused on comparing formulas and inputs. 20. Listeners who compare multifamily deals, financing, and return metrics will get the most value; listeners wanting a story-driven episode may skip it.

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