What is a cash on cash return calculator? And how can it help you make the optimal decisions in real estate investing?
A cash on cash return calculator is an invaluable tool used in real estate investing for a number of reasons. Most importantly, it helps you calculate the cash on cash return value of your income property with ease and efficiency.
So, what is cash on cash return, how is it normally calculated, and how can Mashvisor help you calculate with far less time and effort?
Let’s find out.
Cash on Cash Return Calculator: What Is Cash on Cash Return?
Before getting into the reasons why you should use a cash on cash return calculator and how Mashvisor’s cash on cash return calculator functions, let us first explain what CoC is and why it is important in real estate investing.
Cash on cash return is a metric used by real estate investors for calculating the rate of return on an income property based on the amount of cash invested in the property.
To be more specific, cash on cash return is used for estimating the profitability of a rental property or an income property in particular, and it is based on the amount of cash that the real estate investor pays from his/her own money, leaving out the amount of money borrowed through a mortgage or a loan.
The formula used to calculate the cash on cash return of an income property is:
Cash on Cash Return = NOI (Net Operating Income)/Cash Invested
So, there are two main components to the equation: the NOI and the cash invested. In order to calculate the CoC of an income property, a real estate investor needs to gather sufficient data and have enough information to be able to determine the values of both the NOI of his/her rental property and the amount of cash that he/she intends to put down on his/her purchase.
Want to Learn More? Read: Real Estate Investing 101: How to Calculate Cash on Cash Return?
Cash on Cash Return Calculator: Why Is It a Must?
While it is certainly possible for any real estate investor with enough knowledge to calculate the cash on cash return on his/her rental property without using a cash on cash return calculator, the process can be tiresome, time-consuming, and simply unpleasant when using a spreadsheet and a normal calculator.
Using a cash on cash return calculator, a real estate investor would only need to enter the different values related to his/her rental property’s costs, expenses, and rental income, and the calculator will automatically provide him/her with the cash on cash return value as a percentage to help the real estate investor determine whether the rental property will have good returns or not.
Since the formula for calculating the CoC value requires both the NOI and the cash invested, a real estate investor would need to include a number of different numbers and values and calculate them separately in order to obtain the final result.
The NOI, for example, relies on the real estate investor knowing all the different expenses that will apply to his/her income property. This includes the actual rental income taxes, mortgage payments, and all the other expenses related to the investment.
Using a cash on cash return calculator, a real estate investor is able to enter each value separately, while the calculator takes care of all the rest, calculating the NOI based on the values that you’ve entered and based on the type of mortgage that you’re using to finance your rental property and the interest rate on that mortgage in order to give you an accurate result.
Related: Cap Rate vs. Cash on Cash Return
Mashvisor’s Cash on Cash Return Calculator
Using Mashvisor will not only give you access to readily available CoC values and other useful information and data analytics for the income property of your choice, but you will also gain access to a cash on cash calculator that is pre-filled with the average values based on the area where the rental property is located, while also allowing you to customize and modify the different values based on your own estimations and knowledge.
First, a real estate investor should set his/her choice of mortgage loan type, how much money he/she is willing and able to pay down on the investment property, the duration of the mortgage, and its interest rate.
With Mashvisor, this is automatically set based on our massive data and the area’s averages.
Once you choose a mortgage and the amount of the mortgage, the values will automatically be adjusted accordingly, including the interest rate, which will also directly adjust all of the other calculations in the calculator.
This is because changing the mortgage amount, duration, and interest rates will all affect the expenses that will apply to your rental property since the mortgage payments count directly as an expense.
In turn, any changes to the expenses will also affect the NOI as these expenses are subtracted from the rental income that you’re expected to make.
These are the three major values that you can customize and adjust, and they will all affect one another accordingly:
- Mortgage: Adjusting any value in the mortgage section will make changes to the expenses accordingly.
- Expenses: In addition to the mortgage being calculated in the expenses, you will also have the choice to customize the other expenses, such as the taxes, bills, HOA fees, etc., which will directly impact the NOI.
- The rental income: Automatically set to the average of the area based on the property type, you can also adjust the rental income to suit your desired value or the amount of rent that you intend to charge on your rental property.
These are all factors that are taken into account when the cash on cash return calculator makes its calculations in order to give you the most accurate results that are specific to your investment, allowing you to adjust the different values in order to reach the CoC value that you desire.
Related: What is a Good Cash on Cash Return?
Cash on Cash Return Calculator: Final Thoughts
A cash on cash return calculator is not a must for making a real estate investment. It is, however, a must for real estate investors who wish to make their investment decisions more accurately, more efficiently, and more quickly.
In real estate investing, saving time and effort can add a great value to your investment as it allows you to focus on the other aspects of it, like marketing your property for rent, or managing the property and tending to its tenants.
If you’re looking for a platform that includes a number of great tools that can help you make your investment decisions more effortlessly than ever before, give Mashvisor a look. Mashvisor is a real estate platform designed to bring comfort and confidence to real estate investors, making the process of investing in real estate more seamless than ever before.
