Rental Property Cash-on-Cash Return Calculator
Understanding Cash-on-Cash Return in Real Estate
Cash-on-Cash Return (CoC) is arguably the most important metric for real estate investors who focus on rental properties. Unlike generic return on investment (ROI) calculations, CoC measures the annual return the investor made on the property in relation to the amount of mortgage paid during the same year. It specifically answers the question: "For every dollar of actual cash I put into this deal, how much cash am I getting back this year?"
How the Formula Works
The formula for Cash-on-Cash Return is relatively straightforward but requires accurate inputs to be useful. It is calculated as:
Cash on Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100%
- Annual Pre-Tax Cash Flow: This is your Gross Rent minus all operating expenses (taxes, insurance, HOA, maintenance, vacancy) and minus your annual debt service (mortgage payments).
- Total Cash Invested: This includes your down payment, closing costs, repair/rehab costs, and any other upfront fees paid out of pocket.
Real World Example
Let's say you purchase a rental property for $200,000.
- You put 20% down ($40,000).
- Closing costs and minor repairs cost you another $10,000.
- Total Cash Invested: $50,000.
After collecting rent and paying the mortgage, taxes, and insurance, you are left with $250 per month in positive cash flow.
- Annual Cash Flow = $250 x 12 = $3,000.
- Calculation: $3,000 / $50,000 = 0.06.
- Cash on Cash Return: 6%.
What is a Good Cash-on-Cash Return?
A "good" return varies by market and investor strategy. Generally, in the stock market, investors might expect 7-10% returns over the long run. In real estate, many investors look for a CoC return of 8% to 12%. However, in high-appreciation markets (like coastal cities), investors might accept a lower CoC (3-5%) banking on the property value increasing, whereas in stable cash-flow markets (like the Midwest), investors often demand 10% or higher.
Why Use This Calculator?
Using a dedicated Rental Property ROI calculator allows you to quickly analyze multiple deals. By adjusting variables like the Down Payment or Interest Rate, you can see how leveraging bank money impacts your actual return on cash. Often, putting less money down (if the cash flow allows) can actually skyrocket your percentage return, a concept known as leverage.