Cash-on-Cash Return Calculator
Key Takeaways
- Cash-on-cash (CoC) return measures the cash earned on the cash originally invested in a rental property.
- CoC return can be especially useful for financed rental property purchases because it focuses on actual cash invested rather than total property value.
- A CoC return calculator uses inputs like monthly rental income, monthly operating expenses, monthly mortgage payment, holding period, and total cash invested.
- By using a cash-on-cash return calculator, you can evaluate property cash flow more clearly and make more informed decisions about which rental investments fit their goals.
Cash-on-Cash (CoC) Return
When evaluating an investment property, using rental metrics and analytics is crucial for making informed decisions. Metrics provide a clear picture of a property's current or potential financial performance, helping investors gauge profitability and mitigate risks.
Cash-on-cash return (CoC) is one metric that can help investors optimize their portfolios, ensuring they make the most out of their real estate ventures. Using an online calculator is an easy and efficient way to calculate this metric for your property.
What is Cash-on-Cash Return?
Cash-on-cash (CoC) return, sometimes referred to as cash yield, is the ratio of your income to the amount of money you originally invested. In the case of a real estate investment, a CoC return refers to the cash earned on the cash invested in a property.
CoC return is different from return on investment (ROI). While both metrics measure the profitability of an investment, ROI measures the overall rate of return on your investment, whereas CoC return focuses specifically on the cash flow aspect and measures the equity or actual cash returned on actual cash invested.
Cash-on-Cash Return Formula
The formula for CoC return is below:
Cash-on-cash return = Pre-tax annual cash flow / Total cash invested
This formula divides your annual pre tax cash flow by your total cash invested (the amount of money you originally invested in the property).
To calculate this, you'll first need to assess your pre-tax annual cash flow. The formula for this is as follows:
Pre-tax annual cash flow = (Monthly rental income - (Monthly operating expenses + monthly mortgage payment)) * 12, or other period
This formula uses your monthly income, subtracts any monthly expenses and bills you may have to pay, and multiplies it by 12 to calculate the cash flow you'll bring in during a one-year period.
When to Use Cash-on-Cash Return
CoC return can be used in several different situations, but it should always be used thoughtfully with knowledge of its limitations. Here are a few examples of when it makes sense for real estate investors to use the cash-on-cash return formula:
- During the first few years of owning a property. When you're in your first year or two of renting out a property, it's smart to calculate your CoC return to estimate its performance and success. After several years, your property is more likely to run into factors and risks that decrease the accuracy of your CoC return.
- As a quick analysis or comparison method. If you're someone who looks at dozens of properties before making an investment, speed is paramount to your decision-making. CoC return is a great way to help you sort these properties into initial "interested" and "not interested" piles that you can consider in more detail later.
- For buy-and-hold investors. Since the strategy for a buy-and-hold investor is to rent out properties over a longer period rather than selling them, it's common for them to use cash-on-cash returns to evaluate these investments over time.
Best Uses for Cash-on-Cash Return
| Use Case | Why CoC Return May Be Useful |
|---|---|
| First years of ownership | CoC return can estimate early property performance before long-term variables change the calculation. |
| Quick property comparison | CoC return can sort potential investments into initial "interested" and "not interested" groups. |
| Buy-and-hold investing | CoC return can evaluate properties held for rental income over time. |
| Financed purchases | CoC return focuses on actual cash invested, which can matter when mortgage financing plays a major role. |
How to Use the Cash on Cash Return Calculator
Though the cash on cash return calculator computes a simple formula, it can still save you valuable time and effort as a property owner that you would otherwise spend crunching the numbers manually. REI Grove's calculator makes it easy to find your CoC return quickly — and if you're maintaining a long list of properties, speed can make a huge difference when computing metrics.
Below, we'll look at what numbers you'll need to input to calculate cash on cash return and what your output will look like.
Inputs
Here are the inputs you'll need to use the real estate cash on cash return calculator:
- Monthly rental income
- Monthly operating expenses
- Monthly mortgage payment
- Holding period (e.g., 12 for 1 year)
- Total cash invested
Monthly rental income is your total income generated by a property each month. There are several forms of income to include when summing your rental income:
- Rent
- Nonrefundable deposits (e.g., pet deposits)
- Parking fees
- Utilities
- Other payments received for the use or occupation of a property
Monthly operating expenses are the sum of all non-variable, regular monthly expenses you expect to incur from a property. Operating expenses include:
- Property management fees (including software fees)
- Advertising and listing fees
- Landlord insurance premiums
- Property taxes
- Cleaning and maintenance fees
- Supplies
- Travel costs (if you travel to your office or properties)
- Legal fees
- HOA fees
- Any utilities you cover
Your monthly mortgage payment is the amount of cash that goes toward your mortgage each month. Mortgage payments include principal and interest.
The holding period is the number of months you want to include in the calculation, usually 12 for an annual assessment.
Your total cash invested is the total amount of cash originally invested into the property. This includes a down payment, any closing costs, and other upfront repairs or renovations completed and paid into the initial investment.
Together, the first four inputs will give you your pre-tax annual cash flow. This number will then be divided by your total cash invested to give you the CoC return on your property.
Outputs
After you've entered the above values into REI Grove's real estate cash on cash return calculator, the following outputs will be calculated:
- Pre-tax annual cash flow
- Cash-on-cash return
CoC return is expressed as a percentage, the cash earned on cash invested.
How to Interpret Your Cash-on-Cash Return
What is a good CoC return?
What makes a "good" CoC return varies depending on your market and the specifics of your investment. According to Mashvisor, a general industry standard for a "good" cash-on-cash return rate is between 8-12%. Properties in this range are usually strong investments, recovering those percentages of the capital that was originally invested each year. A property with an 8.5% CoC return rate, for example, will generate enough revenue to cover the entirety of the original investment in about 12 years.
However, as with other metrics in real estate investing, CoC returns shouldn't be used alone. The context of your CoC return percentage matters, and unforeseen changes could affect your income and percentage from year to year, like unexpected expenses or vacancies, inflation, taxes, equity, appreciation, risk and opportunity costs, and major renovations. Consider CoC return as just one tool in your toolbox of rental property analysis, alongside other metrics like cap rate, annual net cash flow, net operating income, etc.
Cash-on-Cash Return Interpretation
| CoC Return Result | What It May Suggest | Considerations |
|---|---|---|
| Higher | Stronger cash return on invested cash. | May involve higher risk or leverage. |
| Lower | Weaker cash return on invested cash. | May suit stability or long-term growth goals. |
| 8%–12% | Often considered a strong CoC return. | Targets vary by market and strategy. |
Conclusion
When used mindfully and in coordination with other metrics, cash-on-cash return can be a highly valuable metric for measuring the success of your properties. REI Grove's cash on cash return calculator real estate tool is the first step in that assessment and is a valuable tool for understanding your rental business' financial health. You can access it and many other resources for real estate investors below.
FAQs
What is cash-on-cash return in real estate?
Cash-on-cash return is the ratio of income to the amount of cash originally invested in a property. It measures the cash earned on the cash invested.
How do you calculate cash-on-cash return?
The formula for cash-on-cash return is Pre-tax annual cash flow / Total cash invested.
How do you calculate pre-tax annual cash flow?
The formula for pre-tax annual cash flow is the following:
(Monthly rental income - (Monthly operating expenses + monthly mortgage payment)) * 12.
What inputs do I need for a cash-on-cash return calculator?
To calculate your property's cash-on-cash return, you'll need its monthly rental income, monthly operating expenses, monthly mortgage payment, holding period, and total cash invested.
What counts as monthly rental income?
Monthly rental income may include rent, nonrefundable deposits, parking fees, utilities, and other payments received for the use or occupation of a property.
What counts as total cash invested?
Total cash invested includes the down payment, closing costs, and other upfront repairs or renovations completed and paid into the initial investment.
What does a cash-on-cash return calculator output?
A cash-on-cash return calculator outputs pre-tax annual cash flow and cash-on-cash return.
What is a good cash-on-cash return?
What makes a "good" CoC return varies by market and investment. According to Mashvisor, a general industry standard for a good cash-on-cash return is between 8% and 12%.
Is cash-on-cash return the same as ROI?
No. ROI measures the overall rate of return on an investment, while cash-on-cash return focuses on the cash flow aspect and measures actual cash returned on actual cash invested.
Should investors only use cash-on-cash return?
No. Investors should also consider metrics like cap rate, annual net cash flow, net operating income, ROI, and other property-specific factors.