Learn more about the importance of this metric and how Mashvisor’s cash on cash return calculator can help you make the best investment decisions in 2022.
As a real estate investor, you need to consider several factors to ensure you are making a profit on your investment, including what are the upfront costs, what kind of profit do you expect from the property, and what the property can be used for. Doing all the calculations can be complicated. Fortunately, you can use a cash on cash return calculator to keep track of the data that you need to consider in order to make good investment decisions.
One of the most important things to calculate before investing in a property is cash on cash return. To help real estate investors navigate through the computations, Mashvisor created a cash on cash return calculator.
What Is Cash on Cash Return and Why is it Important to Investors?
Before you can use a cash on cash return calculator, you need to understand the numbers you are looking at. Cash on cash return – also referred to as CoC return, the equity dividend rate, or a cash yield – is a metric that shows an investor’s potential earnings on a property. Specifically, cash on cash return in real estate shows the annual earnings an investor generates on their investment property compared to how much money the investor initially spent on the property.
If you are wondering how to invest in real estate, you need to understand how to calculate your cash on cash return. It is essential if you’re considering several methods to finance your investment property. There are different ways to finance an investment property, and cash on cash return is important in the financing aspect. It helps determine how much of a loan you may need to take out and how much of your own money you will want to use in your investment.
Calculating your cash on cash return can be tricky; that’s why various platforms provide a cash on cash return calculator to help investors with their calculations. Continue reading to learn more about how an investment return calculator works and what cash on cash return calculator is the most reliable.
What Is Cash on Cash Return Calculator?
A cash on cash return calculator is a tool created to help investors calculate their earnings on an investment property. It means you must insert your own numbers into the rental property calculator to get numbers specific to your investment. Typically, you’ll need two main numbers to do your calculation: your annual income and how much money you initially invested in the property.
If this is your first time investing or you have a new property, you will have to calculate your predicted annual rental income for the first year. You also have to consider the following expenses related to your property:
- Any payments that come along with a property, such as a mortgage or loan payments
- Parking fees
- Maintenance and repairs
- Possible HOA fees
Your expected first-year annual income will be used to calculate your cash on cash return. Some cash on cash calculators may project the annual income for you as well.
Your return on investment calculator may ask for the following expenses as well:
- Closing costs
- Down payment
- Utility fees
- Bank loan costs
- Property taxes
Obtaining all of the above information for your cash on cash return calculator is crucial for you to get an accurate computation.
Once you’ve entered all the relevant information into your rate of return calculator, you will get a number, typically in the form of a percentage, and that will be your cash on cash return. Good cash on cash return for real estate investments is anywhere between 6% and 11%. If your percentage is lower than 6%, you will not be making too much of a profit on your investment. The higher the percentage, the more money you will make. Any percentage above 12% will generate a higher than average cash flow.
All real estate investors should calculate their cash on cash return before investing in any property to ensure they will realize a profit. It would be useless to purchase an investment you are trying to make a profit on when it provides significantly low cash on cash return.
Keep in mind that although cash on cash return calculators are fairly accurate, they cannot account for unexpected things. For example, if you will purchase a property because of the potentially high cash yield and your calculations show the cash on cash return is a good percentage but you have thousands of dollars of unexpected repairs, it can significantly impact your income in the end. Even if you account for some repairs in your calculations, always keep in mind things could happen that might need further maintenance.
Why Mashvisor’s Calculator Is the Best Tool for Calculating Cash on Cash Returns
Though there are many different cash on cash return calculators out there, Mashvisor’s Investment Property Calculator is, by far, the most reliable among them. Mashvisor bases its calculations on the most up-to-date trends to generate an accurate analysis. Rather than trying to do the calculations yourself and using a bunch of spreadsheets to gather and find all information, Mashvisor’s calculator can do it all for you.
The Investment Property Calculator fine-tunes your finances and costs to calculate the returns on your investment. The tool not only calculates your potential cash on cash return but also adds other relevant real estate data, such as property tax, interest rate, and maintenance. It lets you input your own numbers so the data calculated is specific to their property.
What separates Mashvisor’s Investment Property Calculator from similar ones is that the tool also provides a comprehensive rental strategy in addition to your cash on cash return. A rental strategy is a comparison of how your investment property will perform as a traditional rental property vs as an Airbnb rental property. To determine which will perform better, the tool considers the cap rate, rental income, cash on cash return, and occupancy rate. Mashvisor’s analysis helps you make sure that your investment property will perform well as a rental.
How to Use Mashvisor’s Calculator to Get the Cash on Cash Return
Mashvisor’s cash on cash return calculator uses up-to-date data to conduct its analysis. Reliable data, along with the specific property information investors put into the calculator, creates the most accurate cash on cash return forecast. The return on investment (ROI) is then calculated to determine cash on cash return.
To use Mashvisor’s cash on cash return calculator, you simply need to enter tour financing costs along with additional property expenses. Specifying how you financed the property ( cash or mortgage) can also impact the cash on cash return percentage. The financing costs are referred to as the input data.
Once the input data is calculated, Mashvisor’s calculator will generate the output data. The output data is how an investor can tell if a property will be a good investment. Mashvisor’s Investment Property Calculator measures return on investment in three different ways:
- Cash Flow
- Cap Rate
- Cash on Cash Return
All three metrics are essential when calculating how profitable an investment property can be.
Other Metrics to Look Into When Evaluating an Investment Property
Mashvisor’s calculator works by using the data investors put into the calculator, as well as data from reliable sources, to determine how profitable the investment will be. The Investment Property Calculator provides cash on cash return percentage and other relevant information to determine the value of an investment. Below, we will discuss what other metrics investors should look at to determine if their property will be a good investment.
- Cash Flow. This is a metric that shows if a property will have a positive income. It is calculated by finding the difference between the rental income and the expenses that come along with operating a rental property. If you have a positive cash flow, your investment will generate money. In contrast, if you see your cash flow as a negative number, it means you will lose money on your property. Always aim for a positive cash flow.
- Cap Rate. This is also referred to as capitalization rate, and it calculates how profitable a property can be no matter how it was financed (cash or mortgage). It is an excellent metric to use for comparisons.
- Cash on Cash Return. Also referred to as CoC return, this metric predicts how much cash flow a property will generate based on how much cash was put into it initially. It is one of the essential metrics in real estate investing.
Use Mashvisor’s cash on cash return calculator for the most reliable and accurate data on real estate investing.
What Are Good Investing Strategies?
Now that you know what kind of data to look for in real estate investing, you may want to know of some strategies that can help elevate your investment property even more. Below are two of the most popular real estate investing strategies:
The BRRRR strategy refers to the buy, rehab, rent, refinance, and repeat methods. Essentially, investors use the BRRRR method when they purchase a property that they want to flip. Therefore, they buy the property, make the necessary repairs, then rent it out to generate an income.
Once the investor feels as though they have profited enough money, they refinance the property. Then, they can sell it and purchase a new property to repeat the entire process. This strategy is used to increase profits on investments.
The Buy and Hold Real Estate Strategy
The buy and hold real estate strategy is used by real estate investors who are looking to sell a property for a higher price than they bought it at. Typically, an investor will purchase a property and continue to rent that property for a long period of time. After they have rented the property for a while or the real estate market has gone up, they then sell the property for a higher price. This strategy generates an income for investors from the people who rent the property and then an additional income once the property is sold again.
After reading all of the information above, you should have a good idea about what cash on cash return is in real estate. Cash on cash return is one of the most important metrics to follow to ensure you will make a profit on your investment property. As real estate data can be tricky and hard to follow, Mashvisor offers a cash on cash return calculator to help investors navigate through this data.
Mashvisor’s calculator is called the Investment Property Calculator and can be used to calculate all important metrics you will need for your investment. The tool uses data and trends to run an accurate analysis that provides investors with the most up-to-date information.
Though there are other options for a cash on cash return calculator out there, Mashvisor’s Investment Property Calculator is the most reliable. It calculates cash on cash return and much more to help investors ensure their investment property will perform well. On the platform, you will also be able to use other Mashvisor tools like the Investment Property Search to find investment properties for sale in any city across the US. To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.