To calculate annualized returns for investors on the sale of a property, follow these steps:
Formula:
Annualized Cash-on-Cash Return = (Total Distributions divided by Capital Contributions) divided by the number of years the property was owned
*expressed as a percentage
Where:
Total Distributions = Total cash distributions paid (or to be paid) to investors from sale proceeds, rental income, etc., excluding any return of capital (usually generated from refinance or sale of the property)
Capital Contributions = Total cash raised from all investors (including you) for the property down payment, capital improvements, closing costs, operating capital and reserves, acquisition fees, etc.
Steps:
- Calculate Capital Contributions
- Determine Total Distributions to investors minus any return of their Capital Contributions
- Divide Total Distributions by the Capital Contributions: This gives you the total return on the investment; express it as a %.
- Annualize the Return: Divide the preceding result by the number of years the property was held.
- The result is the Average Annualized Return on Investment for the property
