Wondering what is a good cash on cash return for 2021?
In this article, we’ll cover:
- What is cash on cash return
- How to calculate it
- What a good cash on cash return looks like in 2021
- What are the top cities for cash on cash return this year
What Is Cash on Cash Return?
Cash on cash return, or CoC return for short, is a metric used to describe the return on cash investments made in real estate. It takes into consideration the financing method and only uses the total cash invested – not the entire value of the property – as a means of investment property analysis.
When it comes to cash flow investments in real estate investing, knowing what is a good cash on cash return is important, because it will help you understand what kind of a return you can expect on a monthly and yearly basis after making your initial investment.
There are two parts to cash on cash return. The first is understanding this metric as it relates to the city level. While conducting real estate market analysis, this is a crucial metric to calculate. However, you must also calculate cash on cash return for every individual property you consider investing in.
How to Calculate Cash on Cash Return
Real estate investors have some options for calculating cash on cash return. This includes using a return on investment formula specifically for cash on cash return.
Cash on Cash Return Formula:
Cash on Cash Return = Annual Pre-Tax Cash Flow/Total Cash Invested
First you must calculate your NOI, or net operating income, also known as your annual pre-tax cash flow. This is the amount of money you earn from your traditional or Airbnb rental property after subtracting your rental expenses. At this point, a lot of estimating comes into play, so be careful and conservative with the numbers you use. Next, you’ll divide your NOI by the total cash you invested. This includes a down payment, closing costs, and any repair work that must be done to a rental property before it is ready for tenants. This final calculation will reveal your cash on cash return.
However, if you don’t like the idea of doing the math manually, you can use a cash on cash return calculator. Using a calculator is the fastest and easiest way to ensure you will get the best return on investment with a given property. Mashvisor’s real estate investment calculator uses predictive analytics and AI to determine the most accurate estimates, and accuracy is needed in order to make sure you hit your target returns.
At this point you are probably wondering, “What is a good cash on cash return for real estate?” Calculating the metric is one thing, but let’s take a look at what it means.
What Is a Good Cash on Cash Return for a Rental Property?
Before we can answer the question of what is a good CoC return in 2021, it’s important to consider a few different factors. For one, short term rentals and traditional rentals will vary – sometimes drastically – in terms of their cash on cash return even within the same market.
Another consideration to make is that the average city-level cash on cash return is not necessarily the same as the cash on cash return for an individual rental property. There are numerous factors that play into getting a good CoC return for a specific income property for sale. Some of these include the price of the property, the details of your financing, the marketing strategy you will apply for attracting renters, and the rent you will be able to charge.
In general, most experts agree that between 8-12% is a good cash on cash return. This, however, is calculated based on an individual property. City level averages might not show a cash on cash return in this range, so it’s important to do calculations for each specific income property that you consider buying.
Ultimately, both Airbnb and traditional rentals are showing a good return on investment this year. Mashvisor’s nationwide real estate data is showing a good cash on cash return for both sectors of the US rental market in 2021, though the traditional housing market has proven itself to be the strongest throughout the pandemic.
For traditional investment properties, real estate investors can expect a cash on cash return falling in the range of 1.59%-8.17% at the city level. A good return for traditional investments in 2021 will look like anything above 3%. The range for Airbnb investment property cash on cash return is fairly vast as well, from 1.59% to 9.69% at the city level. A really good cash on cash return for Airbnbs will be anything 4-5% or higher.
CoC Return by City for 2021
Let’s take a look at the cash on cash return by city in 2021 for both rental strategies: traditional and Airbnb. The numbers below are based on Mashvisor’s real estate market analsis and reflect the performance of actual rental listings:
Cities with Good Cash on Cash Return for Traditional Rentals
If you’re looking for investment opportunities with a high traditional cash on cash return, you should consider the following cities:
- Marlborough, MA: 8.17%
- Camden, NJ: 6.94%
- Sammamish, WA: 5.74%
- Gary, IN: 5.50%
- Muncie, IN: 5.37%
- Moss Point, MS: 5.20%
- Minot, ND: 5.10%
- Federal Way, WA: 5.01%
- Mesquite, TX: 4.98%
- Bartlet, TN: 4.72%
- Dedham, MA: 4.71%
- Marion, IN: 4.56%
- Cedar Rapids, IA: 4.5%
- Irvington, AL: 4.47%
- Covington, GA: 4.45%
Cities with Good Cash on Cash Return for Airbnb Rentals
If your investment goals include a high Airbnb cash on cash return, you should take a look at these US cities this year:
- Camden, NJ: 9.69%
- Butler Township, PA: 8.17%
- Beaumont, TX: 7.78%
- Berkeley, NJ: 7.73%
- San Angelo, TX: 7.58%
- Bartlet, TN: 7.53%
- Greenville, NC: 7.46%
- Livonia, MI: 6.87%
- Chesapeake, VA: 6.84%
- Trenton, NJ: 6.84%
- Inverness, FL: 6.84%
- Newburgh, NY: 6.84%
- Lansing, MI: 6.3%
- Waterbury, CT: 6.26%
- Lake Charles, LA: 6.25%
For a quick recap of what constitutes a good cash on cash return in 2021, watch our video below:
Both the Airbnb and traditional housing markets are in a steady recovery from the initial shock of the Covid-10 pandemic, and the average cash on cash return is increasing compared to data from 2020. If you’re looking for the best place to invest for a good cash on cash return in 2021, Texas in particular is a hot market. But investors can find great investment properties all across the US, especially in suburban communities, with just a little research and the right tools.