To use the Cash on Cash Return Calculator you will need three items.
- Total Income
- Total Expenses
- Amount of Cash Invested
How to Calculate Cash on Cash Return?
To Calculate the Cash on Cash Return of an investment property, you need to gather a list of income & expenses for the property.
Annual Income
- Rental Income
- Vending Machines / Laundry
- Parking Fees
Annual Expenses
- Mortgage Payments
- Utilities (Gas, Electric, Water, Sewer)
- Real Estate Taxes
- Maintenance / Renovations
- Grounds / Lawn Care
- Garbage Collection
Using the Cash on Cash Return Calculator
In the Cash on Cash Return calculator you will need to…,
Enter the total income for the year, and enter the total expenses for the year.
The calculator will subtract the annual expenses from annual income, and it will give you the Net Income.
Enter the amount you are investing. (Make sure you include; Down Payment, Broker Fees, Loan Fees, and any other cash you will be using to purchase the property)
The Cash on Cash calculator will then automatically give you you Cash on Cash Return.
Calculation Method
Calculation: Annual Net Operating Income / (divided by) Cash Invested in the Property = Cash on Cash Return.
For example:
The property nets $1,000 a month, which is $12,000 a year. You invested $50,000 in the deal (down payment and improvments).
$12000 / $50,000 = 24% Cash on Cash Annual Return.
Cash on Cash versus Return on Investment
Real estate investors love using the term “Return on Investment” as if it is a standard number. The problem with calculating ROI, is that there is no real Apples to Apples comparison. Let me explain…
I buy a property for $1,000,000 with a down payment of $100,000. I take a $900,000 loan at 10% interest (Annual mortgage payment is $90,000). The property has an annual EBITDA of $90,000. After 2 years I sell the property for $1,200,000.
I invested $100,000, and 2 years later received $200,000 (plus my $100,000 investment).
What is my ROI? 200%
What is my Annualized Rate of Return? 100%
What is my Year One Cash on Cash Return? Zero
The Cash on Cash method of analyzing a real estate investment is used for by investors for many reasons. One example is; an Investor who is looking for monthly passive income, needs to do a cash on cash analysis.