Understanding the Rental Property Cash on Cash Return Calculator
Investing in real estate requires more than just guessing; it requires precise financial metrics to ensure a property will be profitable. The Cash on Cash Return (CoC) is one of the most important metrics for real estate investors, as it measures the annual return the investor made on the property in relation to the amount of mortgage paid during the same year.
This calculator helps you determine whether a rental property is a good deal by factoring in income, operating expenses, and debt service.
What is Cash on Cash Return?
Cash on Cash Return is a rate of return ratio that calculates the total cash earned on the total cash invested. Unlike Cap Rate, which looks at the property's potential regardless of financing, Cash on Cash Return is heavily influenced by how you finance the deal.
The formula is:
Cash on Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100
Input Definitions
Purchase Price: The agreed-upon price to buy the property.
Down Payment %: The percentage of the purchase price you are paying upfront in cash.
Closing Costs: Estimated fees for inspections, bank fees, title transfer, and immediate repairs required to rent the unit.
Vacancy Rate: A percentage estimation of time the property will sit empty (usually 5% – 8% depending on the market).
Operating Expenses: These include property taxes, insurance, HOA fees, and maintenance reserves.
Example Calculation
Let's look at a realistic scenario for a single-family rental:
Purchase Price: $200,000
Down Payment: $40,000 (20%)
Closing/Rehab Costs: $5,000
Total Cash Invested: $45,000
If the property rents for $1,800/month and your total monthly expenses (mortgage + taxes + insurance + maintenance) are $1,400/month:
Monthly Cash Flow: $400
Annual Cash Flow: $4,800
CoC Return: ($4,800 / $45,000) = 10.66%
What is a "Good" Cash on Cash Return?
While this varies by investor strategy and market conditions, generally:
8-12%: Considered a solid, safe return for long-term buy and hold.
15%+: Considered excellent, often found in riskier markets or BRRRR strategy deals.
Below 5%: Might be acceptable if the primary goal is high appreciation rather than cash flow.