Question 1

What's the difference between cash-on-cash return and IRR?

Accepted Answer

Cash-on-cash return is a single year's cash flow divided by cash invested — it ignores everything before and after that year. IRR accounts for every year's cash flow plus the sale proceeds, discounted by when they arrive, so it captures the whole hold period including appreciation and principal paydown, not just current income.

Question 2

Why do I need to enter a terminal growth rate for the exit?

Accepted Answer

The sale price is set off the year AFTER you sell, not the last year you held it — a buyer is pricing future income, not past income. Rather than guess that forward number from your last two projected years (which can be misleading if a renovation or lease-up landed unevenly), you tell it directly what growth you expect after the hold.

Question 3

What is equity multiple, and how is it different from IRR?

Accepted Answer

Equity multiple is total cash returned (operating cash flow plus sale proceeds) divided by cash invested — a straightforward multiple with no regard for timing. IRR accounts for timing: a multiple achieved in 3 years reflects a much higher IRR than the same multiple achieved in 10.

Question 4

Does this account for principal paydown separately from appreciation?

Accepted Answer

Yes — the profit breakdown separates cumulative cash flow, principal paydown (the loan balance you've paid off by exit), appreciation (the change in property value implied by the exit cap rate), and selling costs, so you can see which lever is actually driving your return rather than one blended number.

Question 5

What holding period should I model?

Accepted Answer

Five years is a common default and matches many loan terms and investor time horizons, but model the period you actually intend to hold — a shorter hold weights the return more heavily toward the sale price and financing costs; a longer hold weights it toward operating cash flow.

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