Real Estate Cap Rate & Cash-on-Cash Return mechanism

Model scope

The two stated yield formulas are standard under the listed assumptions. The specification needs review because it promises a benchmark comparison without supplying the required input or methodology. Honest label: Educational estimate; not investment advice.

• The cap_rate=NOI/purchase_price formula is standard for an unlevered capitalization rate when NOI and purchase price use the same currency and NOI is annual.
• The cash_on_cash=annual_cash_flow/cash_invested formula is standard when annual cash flow is after debt service and cash invested includes the full initial cash contribution being evaluated.
• The stated output includes a comparison to a benchmark note, but no benchmark input, comparison formula, or definition of the benchmark is provided; that output cannot be computed from this specification.

Units and conventions

• NOI, purchase price, cash invested, and annual cash flow are monetary amounts in the same currency; currency conversion must occur before calculation.
• NOI and annual cash flow are annual figures.
• Displayed percentage equals the decimal ratio multiplied by 100.
• Cash invested is assumed to include down payment and closing costs, as stated; whether reserves, prepaid expenses, renovations, or other initial costs are included is unspecified.
• NOI is assumed to exclude financing costs, while annual cash flow is assumed to be after debt service; taxes, insurance, maintenance, vacancy, and management costs should be treated consistently within NOI.

Inspectable vector

One of 4 source-bound review vectors:

{
  "inputs": {
    "currency": "USD",
    "purchase_price": 250000,
    "NOI": 18000,
    "cash_invested": 75000,
    "annual_cash_flow": 6000
  },
  "expected_outputs": {
    "cap_rate_percent": 7.2,
    "cash_on_cash_percent": 8
  },
  "working": "cap rate = NOI / purchase price = 18,000 / 250,000 = 0.072; 0.072 × 100 = 7.2%. cash-on-cash = annual cash flow / cash invested = 6,000 / 75,000 = 0.08; 0.08 × 100 = 8%."
}

Failure boundary

BREAK_CLAIMED · SELF_FLAGGED

Zero purchase price or zero cash invested produces undefined metrics, so the instrument must reject those inputs or show explicit undefined/error results. A separate hazard is sign ambiguity for negative annual cash flow, which can reverse cash-on-cash from -20% to +20% if losses are treated as unsigned magnitudes.

Other records

Sources and evidence

These pointers bind the page to evidence. They do not grant authority or collapse verification into deployment.

• VERIFIED_LEDGER.json
• evidence-tranche5/tranche5-results.json
• BOUNDARY_HAZARD_CATALOG.json