Cash on Cash Return Calculator | HUD Loans (2024)

FAQs

How do I calculate cash-on-cash return? ›

A relatively simple calculation, an investor can find out their cash-on-cash return by taking the pre-tax cash flow (determined using the income and expense calculations for a property) and dividing that figure by the total amount of cash invested. The resulting figure is the cash-on-cash return.

Q: What is a good cash-on-cash return? A: It depends on the investor, the local market, and your expectations of future value appreciation. Some real estate investors are happy with a safe and predictable CoC return of 7% – 10%, while others will only consider a property with a cash-on-cash return of at least 15%.

Cash-On-Cash Return Example

Let's say you bought a property for $300,000 in an all-cash deal and you charge $3,000 per month when you rent out the property. That means you're making $36,000 on the rent for the year. Your cash-on-cash return is 12% back per year ($36,000 ÷ $300,000 = 0.12).

It is a calculation often used for long-term investments as it focuses on cashflow, signifying whether an investment will generate adequate funds for repaying debts. Although there is no rule of thumb, investors seem to agree that a good cash-on-cash return is between 8 to 12 percent.

It is a fairly simple calculation that is reached by dividing the annual pre-tax cash flow by the total cash invested. For example, if an investor puts $100,000 cash into the purchase of an apartment building and the annual pre-tax cash flow they receive is $10,000, then their cash-on-cash return is 10%.

Cash-on-cash return vs.

The capitalization rate, or cap rate, is simply the unleveraged cash-on-cash return at the time of acquisition. An investment's cap rate is calculated by dividing the annual net operating income by the market value of the property.

What Are the Limitations of Cash-on-Cash Yield? Real estate investors can use an asset's cash-on-cash yield to help them determine its investment performance. But, the yield can be overstated because it may not account for certain factors, including taxes a pre-tax measure of return.

A good cash-on-cash return for a short-term rental property is generally 10% or more, but a “good” return depends on many factors.

While $100,000 is a lot to have in your savings account, it could be the right move if you need that much for your emergency fund and upcoming savings goals. If you want to buy a house, then you may need that much or more saved for a down payment and other costs of homeownership.

Reduce Expenses to Increase Net Operating Income

By reducing expenses, you can increase your net operating income, which in turn increases your cash on cash return. Additionally, reducing expenses also helps to decrease your upfront costs, which can further boost your returns.

How much is 1.5 cash back on $1000? ›

Flat-rate cash back cards

A more common flat-rate amount is 1.5 percent on your purchases, which is what the Capital One Quicksilver Cash Rewards Credit Card offers, for example. Earn a flat 1.5 percent cash back rate on all purchases, which works out to $15 in cash back for every $1,000 spent.

Examples of cash-on-cash return

Let's say you buy a rental property for a nice round number like $100,000, and you're able to pay that amount up front, in cash. If you rent it out for $3,000 a month, but your monthly upkeep costs $1,000, then your annual pre-tax cash flow is $24,000: ($3,000 - $1,000) x 12 months.

There is no hard and fast rule for a good cash-on-cash return. It depends on the market, the location, and the type of rental property that is being purchased. The range varies widely, but a rule of thumb is between 10 and 25%; generally, the lower the rate of return on your investment, the less risk you are taking.

Generally speaking, the real estate market consensus is that a forecasted cash-on-cash return between 8% and 12% is considered a worthwhile investment. Market conditions are another factor that must be considered, as well as the type of properties (and geographical location) of the investments made.

The cash on cash return formula is simple: Annual Net Cash Flow / Invested Equity = Cash on Cash Return.

The formula for calculating the cash-on-cash return involves taking the annual pre-tax cash flow and dividing it by the initial cash investment (i.e., the equity contribution). While the annual cash flow is before taxes, the metric is calculated post-financing, so the annual cash flow is a “levered” metric.

To calculate cash-on-cash return in Excel, divide the annual pre-tax cash flow by the total cash invested.

Cash on Cash Return is the property's annual net cash flow divided by your net investment, expressed as a percentage.