What Is Acquisition Cost?
Acquisition cost = purchase price + closing-costs. A $320,000 purchase with $9,600 in closing-costs = $329,600 acquisition cost. That's what you actually pay to own the property—before any rehab or reserves. Cash-on-cash-return uses acquisition cost (or total-investment if you add rehab) as the denominator. Don't use purchase price alone—closing-costs are real money.
Acquisition cost is the total amount you pay to acquire a property—purchase price plus closing-costs. It's the baseline for cash-on-cash-return and total-investment calculations.
At a Glance
- What it is: Purchase price + closing-costs
- Why it matters: True cost to acquire; deal-analysis baseline
- Typical closing costs: 2–4% of loan amount
- Use it for: Cash-on-cash-return; total-investment
- Doesn't include: Rehab, reserves, capex
Acquisition Cost = Purchase Price + Closing Costs
How It Works
Purchase price. The contract price. What the seller receives. Straightforward.
Closing costs. Loan origination, appraisal, title insurance, escrow, recording fees, prepaid taxes and insurance. Buyer typically pays 2–4% of the loan amount. On a $256,000 loan (80% of $320,000), that's $5,120–$10,240. Seller may pay some in negotiation.
Why it matters for returns. Cash-on-cash-return = annual cash-flow ÷ cash invested. Cash invested includes down payment plus closing-costs. If you ignore closing-costs, you overstate the return. $64,000 down + $8,000 closing = $72,000 invested. $4,800 annual cash-flow ÷ $72,000 = 6.7%. Using $64,000 only = 7.5%—wrong.
Relation to total-investment. Total-investment = acquisition cost + rehab + other upfront costs. For a turnkey, acquisition cost = total-investment. For a fixer-upper, add rehab.
Real-World Example
Ava in Memphis. She under wrote a 4-plex at $385,000. Closing-costs: $11,200 (loan origination, appraisal, title, escrow, prepaids). Acquisition cost: $396,200. Down payment 25%: $96,250. Total cash to close: $96,250 + $11,200 = $107,450. Her cash-flow model showed $6,200/year. Cash-on-cash-return = $6,200 ÷ $107,450 = 5.8%. If she'd used down payment only: $6,200 ÷ $96,250 = 6.4%. The 0.6% difference matters when comparing deals.
Pros & Cons
- Reflects true cost to acquire
- Improves deal-analysis accuracy
- Aligns with lender and tax treatment
- Closing-costs vary by lender and location
- Easy to underestimate—get a loan estimate early
Watch Out
- Prepaids: Taxes and insurance escrow are closing-costs but not "sunk"—you're funding an account. Still count them for cash-to-close.
- Seller concessions: If seller pays some closing-costs, your acquisition cost drops—adjust the model.
- Rehab separate: Acquisition cost is purchase + closing. Rehab goes into total-investment.
Ask an Investor
The Takeaway
Acquisition cost = purchase price + closing-costs. Use it for cash-on-cash-return and deal-analysis. Don't use purchase price alone—closing-costs are real cash.