Real Estate Analysis Cash on Cash Return: How Should You Use It to Make the Best Real Estate Investment Decisions? by Yoana Leusin May 22, 2018May 15, 2018 by Yoana Leusin May 22, 2018May 15, 2018 Do you want to be successful in the real estate investing business? Do you want to know how to select only the best real estate investments? If the answer is yes, then you should know how to calculate cash on cash return. So, in order to find the most profitable real estate investments, an investor should conduct investment property analysis, most importantly compute CoC return. But, how is it done? To find out, keep on reading! #1 What Is Cash on Cash Return? Cash on cash return (CoC return) is seen by many real estate investors as one of the most popular and important real estate metrics. You need two variables to calculate CoC return. These are, namely, the income earned and the cash invested. Calculating cash on cash return will help the investor understand if it is a good idea to finance a specific investment property. So, CoC return calculates the return on investment rate on the cash invested. This is what distinguishes this real estate metric from cap rate. Cap rate is used to calculate return on investment, regardless of the investment property financing method. Interested to learn more about cash on cash return? Make sure to read “The Ultimate Guide to Cash on Cash Return in Real Estate Investing.” #2 What Is a Good Cash on Cash Return? When we are talking about real estate investing, there is no such thing as a golden cash on cash return percentage that all real estate investors strive for. Moreover, real estate investing experts are still arguing on the topic “What is the ultimate cash on cash return percentage?” On one hand, some of the real estate investors state that a good cash on cash return is between eight and twelve percent. On the other hand, some real estate investors would not even glance at the investment property if the cash on cash return of the rental property does not reach the mark of twenty percent or more. However, how can you make sure that your income property categorizes as one of the best real estate investments? Well, you should know how to calculate cash on cash return! That is exactly what we will review next. #3 How to Calculate Cash on Cash Return After you know what is cash on cash return and what is a good cash on cash return, it is time for you to learn how to calculate this real estate metric. To be able to calculate cash on cash return, you first need to fill in the missing values in the formula. To illustrate, you need to calculate the net operating income first to get the results for this real estate metric. The next step is to add up all of the cash invested. In other words, you need to get the total cash invested by the real estate investor which was used to get the rental property up and running. Let’s explore these two variables individually Net Operating Income (NOI) So, to calculate NOI of an income property, your first step is to know what the annual rental income you get is. Let’s assume that your income property generates $ 12,000 rental income yearly. Your next step is to add up all the expenses of the rental property. Let’s say, it reaches $700 per year. Finally, in order to get the NOI, you subtract the costs from the annual rental income. Therefore, your net operating income equals $11,300. Total Cash Invested Well, all the money you have invested in your investment property is known as the total cash investment. However, what does it include? Basically, it is the money with which you have purchased the investment property, the closing costs, loan fees as well as the down payment. To get the total number, all you need to do is simply add up all the variables. So let’s imagine that the total cash invested is $100,000. Therefore, the cash on cash return formula with all values is as follows: Cash on Cash return = NOI / Total Cash Investment Cash on Cash return = $11,300 / $100,000 Cash on Cash return = 11.3% The value of this real estate metric falls in the category of a “good” cash on cash return. It might seem that calculating cash on cash return is just a 5-minute thing. Yet, if you need to compare hundreds of income properties, this investment property analysis is way more challenging than you can imagine. Fortunately, Mashvisor has a cash on cash return calculator to offer to real estate investors. This cash on cash return calculator can make your job easier, quicker and more accurate. #4 The Cash on Cash Return Calculator As the name suggests, the cash on cash return calculator is used to compute the value of CoC return for investment properties. In its basic sense, the tool is a type of rental property calculator. Real estate investors use this tool to save time and receive the precise results in order to select the most profitable real estate investments. However, this tool does much more than just calculating cash on cash return. Interested to learn more about the CoC return calculator? Make sure to read “Cash on Cash Return Calculator Tells You More Than Just Numbers.” But for now, let’s explore the biggest advantage of the tool. Allows You to Determine the Investment Property Financing Method One of the strong sides of a cash on cash return calculator is the ability to determine the return on investment (ROI) and the profitability of an income property taking into the consideration the investment property financing method. The results will fluctuate, depending on the way a real estate investor has purchased the rental property. For instance, it might be with cash or through applying for a mortgage. This calculator allows the investor to estimate which investment property financing method holds a superior profitability. How so? Well, the answer is by calculating various returns of the same property using diverse investment property financing methods. Curious to learn more about investment property financing methods? Make sure to read “4 Investment Property Financing Methods.” To learn more about the best real estate investments, continue reading our blog. Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL 0 FacebookTwitterGoogle +PinterestLinkedin Yoana Leusin Yoana is an experienced content writer with a BA in leisure studies who enjoys giving tips to beginner real estate investors. 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