Investing in a rental property has more than meets the eye. Real estate investors have to deal with many measurable factors when it comes to their rental property investments. When going for a real estate investment for rental purposes, you must know all of these factors to ensure a successful real estate investment decision. Here comes the role of a cash on cash return calculator. But, how accurate is it and should you let artificial intelligence take care of financial decisions on your behalf?
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Cash on Cash Return: Defined
Cash on cash return is a return on investment unit of measurement. It’s an easy and direct way to calculate the ROI without selling or appraising the investment property. Simply put, cash on cash return is the amount you invest in a rental property compared to the rental income generated by said property.
What makes the cash on cash return a valuable tool for real estate investors is the fact that it does not take other factors and their effect on the quality of the real estate investment into account. These factors, while very important to ensure the health of a real estate investment, are not included in the overall calculations of cash on cash return. To clarify, the left-out factors are real estate appreciation, equity, or tax benefits.
In any case, when calculating the cash on cash return, real estate investors can know the success of a real estate investment without looking at the side-show benefits of the investment. You are basically analyzing an investment property for income it generates compared to your initial monetary investment in it.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
Calculating Cash on Cash Return Manually
Cash on Cash Return Formula
Calculating data manually may not be the go-to choice of every real estate investor. However, it can give you a thorough understanding of the makeup of this real estate measurement formula! Let’s take a look at the cash on cash return formula:
Cash on Cash Return = Cash Flow Before Tax / Total Cash Invested
The cash on cash return takes cash flow into consideration. Accordingly, if you are not sure how to calculate cash flow, read this blog post: A Cash Flow Calculator to Spot Positive Cash Flow Properties.
Cash On Cash Return Example
Calculating cash on cash return is nothing more than simple mathematical work. Let’s assume that you’ve purchased a property for $250,000, and put a down payment of 20% which equals $50,000. Subsequently, let’s take a look at the cash flow generated by the investment property before taxes which equals $18,000. Taking these figures into consideration, we arrive at this:
Cash on Cash Return = $18,000 / $50,000
= 0.36
= 36%
This rental investment property has a cash on cash return of 36%. Keep in mind that these are theoretical figures used to demonstrate the cash on cash return calculation.
Cash on Cash Return Calculator
Thanks to the versatility of the real estate market and its adaptability to the constant changes in technology, real estate investing has become as revolutionized by the tech industry as any other type of investment. Real estate investors don’t have to perform manual calculations anymore! A real estate investor can use an online cash on cash return calculator to reach any data he/she needs to make a low-risk investment that’s going to yield much in return.
Looking for low-risk investments? Read this blog post to learn simple tricks to lowering the risk of your investment: Low-Risk Investments: How to Lower the Risk of Your Real Estate Investment.
Of course, a cash on cash return calculator is going to do all the unwanted manual labor for you. You don’t have to go knocking on doors to get comparable information nor do you have to use spreadsheets!
Let’s turn things up a notch and talk about Mashvisor’s cash on cash return calculator. Through the diverse controls of the calculator, you can select any filter to help you navigate the wide arrays of investment properties that are listed on the platform. Any state, any city! With a property search feature like no other, you can select a preference of cash on cash return, occupancy rate, or even rental income and the AI will select locations with properties that match your investment strategy. It doesn’t really get much easier than that!
Read this blog post to learn more of what cash on cash return to go for with rental properties: What Is a Good Cash on Cash Return?
Should you let a cash on cash return calculator make investment decisions for you?
Of course, this is not a black or white type question. However, a cash on cash return calculator is sophisticated enough to give you an insight of what return on investment to expect and whether an investment property is well-worth your time as a real estate investor. Accordingly, pairing a cash on cash return calculator with a thorough comparative market analysis can strengthen your real estate investment decision and tip the odds to your favor
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!
Final thoughts
Using a cash on cash return calculator has definitely never been easier. Through technology’s incorporation into the very much online real estate business, it’s becoming clearer and easier to spot great real estate investment deals. If you’re looking to start making money in real estate, start using a cash on cash return calculator! If you’re looking for suitable investment properties, start using a cash on cash return calculator! It’s really that simple.
If you have any more insights on what a cash on cash return calculator can do for you, please share them with us in the comments section.