In real estate investing, it’s essential that a real estate investor evaluates an investment property before investing money in it. There are many metrics used to evaluate investment properties – like the cash flow and capitalization (cap) rate, to name a few. Another popular (and probably the most important) metric is cash on cash return. Estimating the cash on cash return before buying an income property is something that successful real estate investors always do. How? Simply by using a cash on cash return calculator!
The cash on cash return calculator is one of the most important real estate investing tools that property investors should use to their advantage. If you think that a cash on cash return calculator would show you only numbers – like any other calculator – then we suggest you keep reading as we prove that this is, in fact, NOT true! In this guide, we’ll first cover the basics of the cash on cash return calculator, what it tells real estate investors, why every successful real estate investor needs one, and finally introduce you to the best cash on cash return calculator.
Cash on Cash Return Calculator – The Basics
As you can tell from the name, cash on cash return is the return on investment based on the profit that a rental property makes (annual pre-tax cash flow) and the amount of cash actually invested in the rental property. Here’s the formula used to compute the cash on cash return:
Cash on Cash Return = (Annual Pre-Tax Cash Flow/Total Cash Invested) × 100%
Here’s an example to further clarify: Say a real estate investor invested $20,000 on an income property, and the annual pre-tax cash flow is $4,000. Following the above formula, the cash on cash return is 20%. This means that the real estate investor made a 20% profit on the money actually invested.
Real estate experts generally agree that a good cash on cash return is between 8-12%. The cash on cash return on a rental property that property investors receive depends on how they purchased it – fully in cash or by taking a mortgage.
Related: Is Mortgage the Best Way to Finance Rental Property?
The cash on cash return calculator is a part of the broader investment property calculator. Successful real estate investors make use of this tool to save time instead of sticking to the old-fashioned way of calculating cash on cash return by hand or a spreadsheet. As previously mentioned, the cash on cash return calculator does more than just compute the cash on cash return. So, without further ado, let’s dive right into what a cash on cash return calculator tells property investors.
Cash on Cash Return Calculator – What Does It Tell Property Investors?
Rental Strategy
One important real estate investment decision that real estate investors have to make when buying an income property is the rental strategy they’re going to follow. In real estate investing, a real estate investor can rent an investment property for the long-term (traditional) or for the short-term (Airbnb). Which rental strategy works the best? The answer really depends on a number of factors such as the type of the rental property, its size, its location, and the rental income each strategy generates. This is where the cash on cash return calculator comes in.
Related: Real Estate Investing: Traditional vs. Airbnb Investments
Determining which rental strategy works best for an investment property can be a dilemma for a real estate investor. However, the answer can be easily found with a cash on cash return calculator! Property investors can estimate the expected rental income from each rental strategy using the cash on cash return calculator. Each rental strategy will generate a different rental income, and thus, the real estate investor can easily tell which rental strategy generates a higher return on investment using the cash on cash return calculator.
Click here to start searching for and find the best investment properties with high returns on investment!
Financing Method
As previously mentioned, the return on investment that investors receive differs depending on how they decide to finance their investment properties. A real estate investor might be capable of financing the purchase of an investment property fully in cash, while another might have to take on a mortgage for financing the income property and paying a down payment (usually 20% of the purchase price). The latter is actually the most common financing method in real estate investing, however, is it the best method for financing your income property? The cash on cash return calculator will show you the answer!
Using the cash on cash return calculator, real estate investors can decide which financing method works best for them. If they decide to take a mortgage loan, the cash on cash return calculator allows them to play around with the down payment level, the loan amount, the loan type, and the interest rate. The same thing goes for paying fully in cash – it shows investors the return on investment based on the amount of cash they actually invest. Keep in mind that small adjustments in any variable can yield major changes in the estimated returns. So, the cash on cash return calculator will save a real estate investor a lot of time when choosing the financing method.
Related: The Many Ways for Financing Real Estate Investments
Cash on Cash Return Calculator – Why Every Real Estate Investor Needs One
Saving Time
This one is a no-brainer. Before buying an investment property, a real estate investor has many decisions to make. From the type of the income property, through the rental strategy, to the financing method. Making these decisions obviously requires a lot of calculations to reach the right answer. However, a cash on cash return calculator will provide you with the answer only a few minutes after entering the required numbers.
Analyzing Investment Properties
As mentioned, cash on cash return is a popular metric used to evaluate investment properties. The cash on cash return calculator allows real estate investors to analyze the profitability of an income property by calculating its rental income and monthly expenses.
Click here to start analyzing different investment properties across the U.S real estate market!
Comparing Investment Properties
Successful real estate investors use the cash on cash return calculator not only to analyze a rental property but also to compare it to others in order to identify the best one that generates the highest return on investment. This means a cash on cash return calculator is essential to make smart real estate investing decisions.
Mashvisor’s Cash on Cash Return Calculator
If you’re looking for a real estate investing tool to calculate the cash on cash return on a rental property, we’ve got your back! Mashvisor’s cash on cash return calculator – a part of Mashvisor’s investment property calculator – not only allows you to compute the cash on cash return on a rental property, but it also gives you access to readily available cash on cash return data for thousands of investment properties in the city and neighborhood of your choosing.
Moreover, Mashvisor’s cash on cash return calculator allows property investors to customize and modify the different values based on their own estimations and knowledge, allowing them to get the most accurate results – both for traditional and Airbnb rental properties!
Click here to start analyzing investment properties using Mashvisor’s cash on cash return calculator!
Final Thoughts on Cash on Cash Return Calculator
Evaluating a rental property before investing money in it is a must for a successful real estate investing career. The cash on cash return calculator is the best real estate investing tool that helps property investors make smart decisions and thus guarantee a successful real estate investment.
Mashvisor’s investment property calculator allows real estate investors to calculate and get accurate results of the cash on cash return on a rental property, besides other metrics such as the cap rate and cash flow. Sign up for Mashvisor to get a hold of the best investment property calculator in town and start making smart investing decisions and join the class of successful real estate investor.
For more information on anything real estate, head over to Mashvisor’s Knowledge Center!