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The Power of Leverage - Return On Cash

AKA “Out of Pocket” returns

This is the same formula as the ROI except the amount invested is what you invested in cash. This is the formula to use when borrowing money for your deal. Once you run these numbers you’ll understand why leverage is a huge advantage for real estate investing. 

Example: You make a $40,000 profit on a $120,000 investment. The ROI is 30%. But lets say you put down $25,000 and borrowed $95,000. Now the formula is 35,000 / 25,000, (taking six months debt service into account) which equals 1.4 or 140% return on cash. 

Just a suggestion here: Before you get (justifiably) excited about these returns, consider the pitfalls of using debt in your deals. Be fully informed of the risks.