Short vlog episode (Freedom Vlog EP. 70) in which hosts CJ and another presenter explain basic real estate investment vocabulary—cap rate, cash-on-cash return, and cash flow—giving simple formulas, example ranges, and context about financing versus all-cash purchases. The episode teases a deeper dive on related terms (vacancy provision, short- vs long-term rentals, hard money, net operating income) in an upcoming podcast ('Real Talk').
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Hi, guys. Welcome back to another episode on our Freedom vlog. Today we are here with CJ. We are on episode number 70 of our vlog series. And today we are going to be doing a little real estate vocab, which some of these on our list I am actually going to be learning along the way with you guys. So I'm very excited. I know recently we've talked a lot about cap rates, cash on cash, cash flow, and haven't really explained entirely what that is. So C.J. is going to help me here a little bit on that. How would you describe cap rate?
Cap rate, yeah, of course. So cap rate is basically the return that you are going to receive on the real estate purchase that you are making. So in order to calculate, the cap rate is the net income divided by the purchase price. So the net income is the gross income minus the expenses of the property, everything but the mortgage, divided by the purchase price. And that would get you a cap rate. So you'll hear people, oh, this is a 4 cap rate, meaning that it's 4%. So the net operating income is 4% of the purchase price that you are paying for that property, if that makes sense.
Yeah. Perfect. So now what is cash on cash?
Yeah. So the cash on cash is going to be how much at the end of the year? Right. How much cash will you have left over on all of the cash that you invested in a deal? Right. So for purchasing a property, you may not be putting 100% down. Right. You're going to be getting a loan, so you're only getting a 20% is, you know, your own cash. So whatever the return of your cash or the amount of cash you have versus the cash you invested is the cash on cash return.
Got it. Perfect. That makes. I've had other people explain it to me in a much different way. And the way that you explained it to me at least makes a lot more sense than what the other versions that I have heard it in. So I appreciate that.
Yeah, it's like the return on your investment, basically.
Yeah. Yeah, that makes a lot of sense. Okay, so now what about cash flow?
The cash flow? Yeah. So everyone talks about cash flow. We obviously care about it a lot here at Turnkey Ohio. But the cash flow is after all of the expenses, including the mortgage. What is this property going to cash flow either monthly or. Or over the year. So a lot of our properties, obviously it ranges depending if you're getting a loan on the property or not, how much that property may cash flow per month. But we're typically seeing, you know, 100 to $200 on a lot of our properties. So 100 to $200 per month of cash flow, which is basically after all expenses paid, this is what gets to go into your pocket.
And I feel like that's. I get to look at property presentations a lot and a lot of the numbers and I feel like that is a number for financing. So now if you are an all cash buyer, that would be a little higher, is that correct?
Yeah, it'd be a lot higher. Okay. Yeah, it's going to be a lot higher. And you know, we get it. Our investors are coming all across the country and some even across the world to purchase in Dayton, Ohio. And that's for the cash flow. If you go to purchase these properties in some of the more densely populated or larger cities, they're more of an appreciation market and betting on appreciation. Right. Whereas with our properties, we know that all of our expenses are going to be paid every month and there's still going to be a return at the end as well, which is that cash flow.
Perfect. I love that. That was amazing. That was a beautiful example. Okay, well, I don't want to get too much into it today because we do have an upcoming podcast and where we're going to dive into more of the common terms, things such as your vacancy provision and what is a short term rental versus a long term rental, what is hard money, your net operating income and things like that. So that will be on our podcast coming up, which is Real Talk. We have new episod that are released every Tuesday, so be sure to check that out.
Yeah.
But in the meantime, we always like to end these with Invest Smart, Live Happy. Thanks, guys.
Bye.
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