Cash on cash calculation w/ date placed in service

[jshao100]

Not sure if this should go into bug reports or wishlist as it is not clear if this is intended behavior.

Specifically the comments here:

Cash on cash metric

Curious other investors thoughts. I just bought a property and put $140k as my down payment, paid $5k of closing costs, and put $20k into the property as cap ex. I noticed Stessa shows my total ‘cash in’ as just $145k, and does not include my initial cap ex upfront as part of my cash in. Shouldn’t cap ex always be included as part of your ‘cash in’ if its coming out of your pocket, and not from operations from the property?

and

Cash on cash metric

I agree here. Most of my projects take around 3-6 months to complete (which is beyond the 60 days that the CoC currently takes into account), and the property is not “in-service” until the renovations are complete. I would like to request that capex for cash on cash calculations take into account all cap ex until the unit is put “in-service”, i.e. vacancy is being monitored.

Once “date placed in service” is set for the financial / acquisition details, the cash-on-cash calculation does not seem to be using any capex numbers from before or even within 60 days.

When “date placed in service” is not set, capex numbers are entirely ignored (other than closing costs)

[jshao100]

To expand, this is what I’ve found after playing around with the numbers:

When “Date Placed In Service” is set for a property:

• Categories:
  Maintenance:
  Legal & Professional
  Admin:
  Insurance
  Taxes:
  Utilities
  Mortgage & Loans
  Income

  • When transaction date is before “Date Placed”, used in denominator (Cash In)
  • When after, used in numerator (Cash Flow)

• Categories: <-- This is the part that doesnt make sense
  CapEx (all):
  Management Fees:
  Security Deposit:
  Transfers:

  • Do not get used at all. This is understandable for the Security Deposit and Transfers, but why does it not get used for CapEx and Management Fees??

When “Date Placed In Service” is NOT set:

• Categories:
  CapEx (Closing Costs / Loan Costs):

  • Used in denominator (Cash In)

• Categories
  Maintenance:
  Legal & Professional
  Admin:
  Insurance
  Taxes:
  Utilities
  Mortgage & Loans
  Income

  • Used in numerator (Cash Flow)

• Categories: <-- Again, does not make sense.
  CapEx (other):
  Management Fees:
  Security Deposit:
  Transfers:

  • dont get used?? Again, makes sense for the Security Deposit and Transfers but CapEx and Management Fees should be used.

[jshao100]

TLDR: Just handle them the same as all the other categories

1. Management Fees should get calculated into the Cash Flow number
2. CapEx should get calculated into the Denominator / Numerator depending on Date Placed into Service.

[devin]

@jshao100 Thanks for the detailed analysis and recommendations here. It’s much appreciated!

We have a revision to the cash on cash metric in the works right now. Going forward, net cash flow prior to the placed in service date (including the impact of capex) will be included in the cash-in / denominator. If this early cash flow is negative your “cash-in” will increase, and vice versa.

All net cash flow (including capex) reported after the date placed in service will factor into the numerator. With this revised CoC calculation, your cash-in / denominator will not change after the date placed in service.

We’ll post an update here and on other relevant threads once the CoC updates are live on Stessa.

[jshao100]

That’s great to hear! Do you know what an approximate timeline might look like for the update? Thanks

[devin]

@jshao100 The updates to the cash-on-cash metric are now live on Stessa. For more details on exactly how both the numerator and denominator are now calculated, read Understanding Your Cash-on-Cash Return.