Real estate investing: cash-on-cash yield. On the Cash on Cash worksheet tab, we have some deal terms that include the purchase price, the closing costs, the loan to value, the loan fees, as well as the interest and amortization. The first thing we're gonna do is calculate the unlevered net cash flow. This represents the cash flow to all stakeholders and we're going to use the purchase price, as well as the closing costs. And the unlevered cash flow in years one through five is simply the NOI.

From here, we need to now calculate the levered net cash flow. So this will be the cash flows only to the equity holders. So we need to take out all debt-related items, including the fees. The debt funding provided 65% of this purchase price. And here this is gonna be a positive because it's going to actually reduce the amount of the purchase price and only show us the amount that the equity holders put in. The origination fees, however, were an expense, so they are going to be a negative because they actually are capital going out of the deal. So that's going to be the 1% times the loan proceed amount. And therefore, the levered net cash flow in year zero will amount to what is effectively the equity investment in the deal. The loan payment is going to be in years one through five, a combination of the principal and the interest. I need to calculate my payment and this is going to be done on a monthly basis. And then I'm going to annualize it. So that's going to be the rate divided by 12. And I'm gonna go ahead and anchor these so I can copy it across the number of periods anchored times 12, the present value.

And I'm gonna keep that positive so that it returns a negative payment for me at the end. The future value is zero and the discounting will be at the end of the year. And then I'm gonna take this and multiply it by 12. And that gives me the annualized loan payment. Now I should be able to copy this across. And my levered net cash flow is simply the unlevered cash flow net of my loan payment. And that's in each year. And with this now, I can calculate my annual cash on cash. And that's going to be my yearly levered net cash flow divided by the opposite of my equity investment. And that's going to be anchored. So I get 4.8% and now I can copy this across. And what we see is the annual cash on cash going up. And that's primarily because the net income or net operating income is going up each year. And the equity investment, of course, is staying the same. The average cash on cash will be the average of these at 6.5%. And just for prosperity, we'll calculate the cap rate, which is going to be the NOI from year one divided by the purchase price. And that gives us a 5.5% cap rate.