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Home » Blog » Cash on Cash, IRR, or Cap Rates: Which Is More Accurate In Determining the True Value of Triple Net Exchange Properties?

Cash on Cash, IRR, or Cap Rates: Which Is More Accurate In Determining the True Value of Triple Net Exchange Properties?

triple net exchange properties

Many investors confuse or discount the true value of the terms cash on cash, internal rate of return (IRR) or cap rates for the investment properties they are considering for their portfolio.

The Determining Factors Of Triple Net Exchange Properties For Investing

The amount of equity, cash or boot you place in a triple net exchange property and what cash earned on the amount of cash you get back yearly may or may not be the most determining factor of investing.

  1. That cash may or may not be taxable depending on your depreciation you are taking each year.

It may not represent a true return on your equity, but it is a temporary amount that the present income throws off after loans and possible expenses associated with the triple net property. Loans change, rents can change and other issues can change the cash available to pay the investor each year.

  1. The internal rate of return is a far better indicator of your true return after you take in consideration the ending value when sold.

This method gives you the yearly return on equity after all expenses along with increased rents if any and adjustments for loan payments and final sale of the investment to truly see what you gained or lost after the completion of sale from beginning to end of your investment time period.

Don’t forget exchanging one property for another, done correctly, through an intermediary prevents you from paying a capital gains tax and recapture tax on your past property you are trading out of currently.

  1. Cap rates are usually an indication of what you the investor are paying based on the present net income of a triple net exchange property verses the price paid. The lower the cap rate the higher the price you are paying for the investment property.

So a 6 cap is the net income you receive the first year after all expenses that equates to 6 percent of the total sale price of the property.  For example a 2 million sale price for a triple net Burger King at a 6 cap is $120,0000 net income first year or .06 times 2000000 equals $120,000 income.


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Tags: cap rates, cash on cash, internal rate of return, IRR, Triple Net Exchange Properties