Real Estate AnalysisCash on Cash Return: What is it? by Nasser Mansur May 1, 2018April 22, 2018 by Nasser Mansur May 1, 2018April 22, 2018What is Cash on Cash Return in real estate investing?The cash on cash return is one of the most common metrics used for calculating the rate of return on an investment property when investing in real estate.But what exactly is the CoC return, and how do you calculate it?Cash on Cash ReturnThe cash on cash return is a metric that measures the rate of return of an investment property based on the amount of cash that you paid for it.Related: What’s the Difference Between the Cap Rate and the Cash on Cash Return?This means that the CoC return does not take into consideration the amount of money that you borrow through a mortgage or a loan, but will only calculate the rate of return based on the amount of cash that a real estate investor has paid out of his/her own pockets.The CoC return can help real estate investors understand exactly what they are getting for their money, and it can help them avoid unnecessary risks and plan the future of their investment and finances.How is the Cash on Cash Return Calculated?The cash on cash return has a very simple and easy-to-use formula for calculating it:CoC Return = (Before-Tax Cash Flow / Cash Invested) X 100Basically, the before-tax cash flow is the amount of profit that you are making from the investment property. In the case of a rental property, for example, the cash flow is the amount of monthly rent minus the monthly expenses.The cash invested is, well, the cash that the investor has paid out of his/her own pockets.You multiply the value by 100 because the cash on cash return is a percentage-based value.To give you an example, let’s suppose that you’re purchasing an investment property that you want to rent out for $2,400/month. The monthly expenses of this rental property amount to $1,600. The price of the property is $200,000, and you’re using an 80% mortgage to finance the purchase.The annual cash flow of this property would be $9,600 (annual cash flow – annual expenses).The cash invested in this property would be $40,000.Now let’s do the math:CoC Return = ($9,600 / $40,000) X 100CoC Return = 24%So, what does it mean?This means that your rental property will be generating a profit that is equal to 24% of the amount of cash that you have invested in it each year.Related: 10 Most Profitable Airbnb Locations for Cash on Cash ReturnFinal NotesIt should be noted, however, that this was a very simplified example. In reality, there are several aspects that should be included in your calculations, such as the mortgage payments and interest rate, and the end result will probably be lower than 24%A good cash on cash return, although it depends on several factors, should be anywhere above 5%, with the average CoC return being somewhere between 8-15%.To learn more about how we will help you make faster and smarter real estate investment decisions, click here.Make sure to use Mashvisor during your search for an investment property to find the best properties based on their cash on cash return. Start Your Investment Property Search! START FREE TRIAL 0FacebookTwitterGoogle +PinterestLinkedin Nasser MansurNasser is an experienced content writer with a degree in English Language and Literature. He loves writing about all aspects of the real estate investing business with focus on market and property analysis and the best sources which every real estate investor needs in order to succeed. Previous Post When Owning an Airbnb Rental Property is Not a Good Investment Idea Next Post How to Make the Most From the Best Real Estate Websites Related Posts Positive Cash Flow Properties: What Are These and How Do You Get One? Real Estate Investing for Beginners: The Rate of Return Formula Why You Don’t Have a Higher Return on Investment with Real Estate Price-to-Rent Ratio: Everything You Need to Know Panama City Beach Real Estate: Why You Need to Own a Piece Learn How Much Cash Flow Is Good for Rental Property Here’s the Best Way to Do Comparative Market Analysis How to Find Real Estate Comps Most Effectively How Can You Assure Good Cap Rate for Rental Properties? Real Estate Analytics Software: How to Use It to Make Money Is Capitalization Rate or Cash on Cash Return the Better Real Estate Metric? Buying Your First Investment Property? Don’t Make THIS Mistake!