The term cash on cash return calculator is rarely heard outside the real estate investing world because most other types of investments and investors deal with the term return on investment (ROI). However, unless your property is actually sold, ROI can be very hard to estimate in rental and residential real estate investing. On the other hand, the cash on cash return is a much easier number to calculate. Before we dive into it, let’s first take a closer look at what cash on cash return means.
What Is Cash on Cash Return?
Cash on cash return is a metric that calculates the cash income earned (annual cash flow) on the cash invested in a property and is expressed as a percentage, as shown below:
Cash on Cash Return = Property’s Annual Cash Flow/Cash Investment
For example, if you invested $20,000 in a rental property, and it generated $4,000 this year, then your cash on cash return is 20%.
The cash on cash return is a great metric and is widely used throughout the real estate industry among real estate investors due to its simplicity in calculating the percentage return on investment. It is important for real estate investors to know what cash on cash return is because it provides them with an analysis of the business plan for a property, and helps them evaluate the long-term performance of their real estate investment.
Calculating cash on cash return can be done in more than one way. Some real estate investors like to stick to the old fashioned way where they calculate all their numbers using formulas and equations by hand. Others would rather make money, get rich with real estate, and benefit from advanced technology by using a cash on cash return calculator.
What Is a Cash on Cash Return Calculator?
A cash on cash return calculator is one of the best real estate investments tool that shows real estate investors the ratio between the property’s cash flow in a particular year (usually before taxes) and the amount of initial cash investment. In other words, it provides a real estate investment property analysis. Learning how the cash on cash return calculator works is not hard, but you have to understand the many factors that come with it. The two main factors which make up cash on cash return are the total cash invested and the annual pre-tax cash flow. Keep in mind that you need to have a positive cash flow to make money and get rich from your real estate business.
- Total Cash Invested = Down Payment + Closing Costs + Repairs
- Annual Pre-Tax Cash Flow = Net Operating Income – Debt Service
Where the debt service of a property is the amount used to cover the principal and the interest on a mortgage, and the net operating income (NOI) = Gross Scheduled Rent + Other Income – Operating Expenses – Vacancies.
To better understand the cash on cash return calculator, let’s break down each component and understand what it stands for:
1. Gross Scheduled Rent: It is the rental income you would receive if your rental properties were occupied all the time. Basically, it is the amount of rental income you can expect to receive from your real estate investment property.
2. Other Income: It is any other kind of income charged with the rental property such as parking spaces.
3. Operating Expenses: They are the expenses that keep the rental property in services, such as insurance, taxes, maintenance, bank fees, property management, and repairs.
4. Vacancy: It is the rental income you lost on a daily basis due to a tenant not being in place. You measure it by taking the number of days your rental property was vacant multiplied by the daily rental rate.
Why Is Cash on Cash Return Calculator a Great Real Estate Investing Tool?
Saves a Lot of Time
As you can see from the cash on cash return formula, there are many factors included when using a cash on cash return calculator, most of which require accurate data to be calculated, and obtaining such data can be exhausting if done manually. Using a cash on cash return calculator solves this issue.
Mashvisor’s cash on cash return calculator makes investors succeed in real estate investing by computing cash on cash return in very little time. All the real estate investor has to do is insert some values, and the cash on cash return of the property is calculated.
Calculates Expenses
Investment properties have a lot of expenses to consider, including mortgage payments, interest, association fees, repairs, maintenance, etc. Some are situational, while other recur throughout a specific time frame. Successful real estate investors keep track of all these expenses with the help of a cash on cash return calculator.
Mashvisor’s cash on cash return calculator sets up all the expenses of an investment property, while some mandatory ones are inserted by the real estate investor, and it then calculates the costs of each.
Calculates Rental Income
Besides the previously mentioned expenses, rental income is an important part of the cash on cash return formula, and finding out the estimated rental income of an investment property is not a simple task. Real estate market analysis, real estate comparables (comps), and the location’s economy all help in determining the rental income. A cash on cash return calculator collects these data and updates them more accurately than when done manually.
Related: Why does every real estate investor need a cash on cash return calculator?
Mashvisor’s Investment Property Calculator
If you’re looking for a residential rental real estate investing tool that gives you the ability to search for properties and provides an investment property analysis with a click of a button, be sure to check out the Mashvisor’s investment property calculator. Not only does it calculate cash on cash return, but also cap rate and cash flow for Airbnb rentals and traditional investment properties. In addition, Mashvisor gives a detailed neighborhood and property analysis in the city of your choosing.
Related: How to Use Mashvisor’s Rental Property Calculator
Conclusion
The cash on cash return calculator is a real estate investing tool that provides an investment property analysis to help real estate investors understand the rental property’s overall performance and make the best real estate investments decisions. With Mashvisor’s investment property calculator, you will have your own personal guide on what to expect from your real estate investments.