Hi All, A lot of people focus on the growth of the property ..so lets say someone buys a place for 300k and it goes up to 400k....that represents a 100k increase or a 33% CG. I think this is very simplistic..and it not considering true Cash on Cash return. So what is the cash on cash return? Well lets look at two scenarios here: 1. First house is bought for $120k ....the deposit is 12k.....stamps and other costs are another 5k plus a reno cost of 7k. Lets say it is sold for $180k and agents fees are $5k. The house was held for 5 years and was positively geared to the tune of lets 10k over the last years. 2. Second house is bought for $300k...the deposit was 30k....stamps and other costs was $20k plus a reno cost of $25k. Lets say the house is sold for 450k and agents fees are 15k. The house is held again for 5 years and was neutral geared. On the surface it looks like option tow is the better buy. But if you use the Cash on Cash return method ...option 1 is the better buy. Why...let have a look. 1. Options 1: the total capital costs is 5k in costs plus 7k reno cost but due to tax deductions it has only costed you 5k....plus another 5k for exit costs. So the total cost is 15k. Add that to the original 120k and you have 135k base cost...since you sold for 180k...your profit before tax is 45k. But you also made 10k positive income from the property over the 5 years. so the total cash return is 55k. Now for the cash on cash method. you add the total in/out costs plus your deposit it cost you 21k. Your profit before tax is 55k. So technically you had a return of 262% cash on cash return. That means using the rule of 72 your money grew about 18% per annum 2. Options 2: the total cost 20k in costs plus 25k reno after tax advantage it would be around 18k plus 15k exit fees. So the total in/out costs is 43k. Add this to the original 300k you have a 343k base cost..since you sold for $450k...the profit before tax is 107k. But no money was made from CF....so total return is still 107k. Now for the cash on cash method applied to this scenario. Add the cost deposit to the original 30k deposit...you have 73k. Your profit beofre tax is 107k. So technically you have made 147% return on a cash on cash return basis. That means using the rule of 72 your money has grown about 7% per annum I believe using this method is really important as this conveys the real rate of return on your funds.