Wise real estate investors know the importance of using a cash on cash return calculator for market data analysis before investing in a property.
Table of Contents:
- What Does Cash on Cash Return Mean in Real Estate?
- What Is a Cash on Cash Return Calculator?
- Why Do You Need a Cash on Cash Calculator?
- The Bottom Line
Investors know that you always need to assess the potential return on investment of an income property upfront. This will help you determine whether buying real estate property makes financial sense or not. One common real estate return on investment metric used to evaluate the profitability of real estate deals is cash on cash return.
So, if you are just getting started in real estate investing, seriously consider using a cash on cash return calculator. It will help you do all the necessary calculations accurately and quickly to identify the right investment opportunities.
In this blog, we will discuss the best CoC return calculator in the market and why you should have it. But before we dive into that, what exactly does cash on cash return mean?
What Does Cash on Cash Return Mean in Real Estate?
Cash on cash return (CoC return) is what investors use to determine the return on investment on an income property. This gives investors a projection of how much an income property can make on the initial amount of cash invested. It is essentially the ratio of annual pre-tax cash flow to the total cash investment made to purchase the property. Unlike the capitalization rate (or cap rate), cash on cash return takes into account the method used to finance the property.
Here’s the cash on cash return formula:
Cash on Cash Return = Annual Pre-Tax Cash Flow / Total Cash Invested
Where:
- Annual Pre-Tax Cash Flow = Annual Net Operating Income – Mortgage Costs
- Total Cash Invested = Down Payment + Closing Costs + Rehab Costs
The higher the cash on cash return, the more profitable the investment property. It doesn’t get any simpler than that. It basically just means that you will be earning more for each out-of-pocket dollar you have invested. However, investors should also note that a higher CoC return also typically means a higher investment risk.
The CoC return formula can help you if you prefer to manually calculate your investment property’s cash on cash return. You can make a DIY cash on cash real estate calculator in Excel and enter the formula on the spreadsheet. This way, you automatically have an idea of the CoC return to know if a property is worth investing in.
What Is a Cash on Cash Return Calculator?
A cash on cash return calculator is an online tool that can compute the cash on cash return of an income property. It typically uses real estate data and system-generated analysis from legitimate real estate data sources. The investment tool is essential for real estate investors because it establishes if a property is a good investment.
While there are many free CoC return calculators available online, not all are created equal. Most of the free tools require you to input the necessary real estate information manually. You may still choose to use these types of free real estate cash on cash return calculators. However, take note that if you do, you still need to find crucial real estate data about the property. This includes the gross rental income, vacancy rate, operating expenses, and annual mortgage payment, among others.
If you want the fastest and most efficient way to calculate cash on cash return, you have options. But it’s vital to find a calculator that can provide all the necessary property information that you need. Look for an efficient property calculator that can compute all the important figures to help you make an informed decision. The right calculator will lessen the time spent conducting manual research and data analysis.
Why Do You Need a Cash on Cash Return Calculator?
You now know how to calculate cash on cash return by hand using the CoC formula. But is this the best way to do cash on cash calculations? Manual calculation using cash on cash return formula when analyzing a single rental property is helpful, yes. However, it becomes a daunting task when you want to analyze multiple properties.
To make work a little easier, some real estate investors use a cash on cash return analysis spreadsheet. While a cash on cash return calculator Excel can provide great results, spreadsheets can still be very time-consuming. You still need to input all the needed information manually. Doing this puts it at a greater risk for miscalculations as manually entering data is more prone to errors. The latest technological advancements essentially rendered investment analysis spreadsheets obsolete.
Using Technology to Your Advantage
This is not to say that doing things manually isn’t effective. You may still go with the conventional way of doing things if you want to. However, it will take a lot more time and even more effort if you’re considering a few investment properties. Doing things the old way entails driving around town to look for properties for sale. It involves making appointments and lots of phone calls to get the relevant information you need. It requires spending a lot of time gathering data and analyzing them one by one for each property you’re considering.
Simply put, it takes way too much of your energy and resources to accomplish. Doing things with the help of technology, on the other hand, speeds up the process significantly. What would normally take weeks or months to accomplish conventionally can be done in minutes on real estate websites. You can look for properties and even perform real estate market analysis online.
Today, many investors prefer to use a cash on cash real estate calculator to compute the CoC return that will help determine a property’s profitability. An online cash on cash return calculator is the best tool that can provide accurate results based on actual real estate data. Aside from its accuracy, you can also benefit from its ease of use and speedy results.
For instance, Mashvisor’s investment property calculator does not only calculate cash on cash return but also provides accurate real estate data based on in-depth research and analysis. Let’s look at how Mashvisor’s investment property calculator works and why it is the best cash on cash return calculator in the market in 2022.
Mashvisor’s Cash on Cash Return Calculator
Mashvisor is a real estate investment software that helps real estate investors search and analyze Airbnb and traditional investment properties. It covers almost the entire US housing market and makes use of big data and predictive analytics. With a wide range of highly interactive real estate investment tools, you can make faster and smarter rental property investment decisions. Mashvisor basically levels the playing field as it helps beginners compete with experienced real estate investors.
The cash on cash return calculator is one of Mashvisor’s most popular tools. It is a rental property calculator variant that does cash on cash return calculations accurately in a matter of minutes. As mentioned earlier, it will take you weeks if you go with Excel spreadsheets and most cash on cash return calculators online. Using them requires days or even weeks of gathering property data before you can run the numbers.
On the other hand, Mashvisor’s real estate calculator does all the leg work for you. Mashvisor derives its real estate data from multiple reliable sources, including the MLS, Airbnb, and other publicly available sources. The calculator then uses predictive analytics and machine-learning algorithms to make accurate cash on cash return projections.
Mashvisor’s CoC return calculator saves investors a lot of time and effort instead of manually gathering and calculating property data. That’s why if you are looking to invest in the US housing market, this is a must-have tool. Let’s take an in-depth look into how Mashvisor’s cash on cash return calculator actually operates.
How Does Mashvisor’s Calculator Compute Cash on Cash Return?
We have already mentioned how Mashvisor gathers its real estate data. While the numbers are provided automatically, Mashvisor’s calculator basically arrives at cash on cash return estimates in three simple steps:
1. Estimates Rental Property Expenses
Rental expenses are one of the key numbers used to calculate cash on cash return. However, finding this data from landlords or Airbnb hosts in the area can be quite a hassle and very time-consuming. Fortunately, Mashvisor’s investment property calculator estimates both one-time startup costs and monthly rental expenses for any investment property in the US housing market. The system arrives at cost estimates, which are based on a property’s rental comps.
The rental property expenses that the calculator estimates include:
One-time Startup Costs
These are one-time costs that are necessary for purchasing and preparing a rental property for occupancy.
- Closing costs
- Total repair costs
- Inspections
- Furniture and appliances
Recurring Monthly Expenses
Recurring monthly expenses have to do with maintenance and repairs to keep the property in great condition.
- Utilities
- Property management
- Marketing
- Insurance
- Property tax
- HOA dues
- Rental income tax
- Property maintenance
Mashvisor’s Cash on Cash Return Calculator will estimate expenses for rental properties.
Mashvisor’s cash on cash return calculator provides estimates of the common rental expenses in the area. However, some specific rental expenses unique to your target property may not be included in our calculations. This shouldn’t be a problem as the tool allows investors to customize their numbers accordingly.
To help you get even more accurate cash on cash return projections, our real estate investment software platform allows you to adjust the cost estimates and/or add custom expenses as you see fit.
2. Estimates Rental Income and Occupancy Rate
As part of the cash on cash return calculation, Mashvisor’s calculator can give an income property’s projected rental income. The calculator comes up with a rental estimate for both Airbnb and traditional rental strategies. This should be very helpful for investors who have yet to make a decision on whether to go with a long-term or short-term rental.
The estimates are based on the average traditional and Airbnb rental income in the neighborhood. It also gives the current traditional and Airbnb occupancy rates in the market of your choice. That said, Mashvisor’s CoC return calculator can also be used as a rent estimator.
3. Calculates Cash on Cash Return
Based on the estimates for rental expenses and rental income, the cash on cash return calculator automatically computes the expected cash flow as well as the expected CoC return. The calculator computes both traditional and Airbnb cash on cash return. This makes the comparison between rental strategies a lot easier for real estate investors.
Here is a closer look at some of the values Mashvisor’s Cash on Cash Return Calculator will calculate for you.
What More Can You Get From Mashvisor’s Investment Property Calculator?
Unlike most basic cash on cash return calculators in the market, Mashvisor’s calculator offers real estate investors much more information. Apart from cash on cash return analysis, there are many aspects of investment property analysis that, collectively, help you make smarter investment decisions. If you want to get your money’s worth, invest in a return on investment calculator that gets the job done. Look for an online calculator that can give you additional data and insight into the investment property you are analyzing.
Mashvisor’s calculator is one such tool. But more than just the calculator, the real estate website has a lot more to offer real estate investors.
Here are some key features that newbie and seasoned investors can expect from Mashvisor:
1. Mortgage Calculator
One factor that will significantly impact your cash on cash return is the method of financing you plan to use to purchase property. The costs usually vary from one investment loan to another as well as from lender to lender. When shopping for the best financing option, you need to take into account the financing costs and how they will affect your return on investment.
Take time to look deeper into the different choices available to you. Ask the necessary questions. Ask the tough questions. Don’t just go with the first option available. Shopping for the right mortgage is like buying a real estate property. You should always look for the best possible deals. Know the numbers so you can make accurate computations and comparisons.
Fortunately, Mashvisor’s cash on cash return calculator includes a built-in mortgage calculator that does the work for you. By simply changing the mortgage details on the mortgage calculator, you can automatically see how they affect the cash flow and cash on cash return estimates. It helps you determine the investment property financing option that yields the highest return on investment.
The calculator allows you to specify the following mortgage details:
- Property value/price
- Loan amount
- Down payment
- Mortgage type
- Loan term
- Interest rate
Enter your mortgage information and Mashvisor’s calculator will provide the cash on cash return.
2. Optimal Rental Strategy
When buying an investment property, it’s crucial that you determine the optimal rental strategy. Depending on the potential rate of return for both strategies, you may want to consider it as an Airbnb investment or a traditional rental investment.
As mentioned earlier, Mashvisor’s cash on cash return calculator provides estimates for both Airbnb cash on cash return and traditional cash on cash return. By comparing the numbers, you can quickly determine the most profitable rental strategy for the property you are evaluating in terms of the CoC metric.
3. Neighborhood Analysis
Apart from determining the potential cash on cash return of an income property for sale, it’s also important to compare it with the neighborhood’s average cash on cash return. It will show you how the property is performing relative to the other income properties in the area. It’s also important to compare the average performance of the neighborhood with the performance of other neighborhoods in the city.
You can get a quick analysis of the neighborhood where the subject property is located by clicking on the neighborhood’s name. You’ll be taken to the Neighborhood Analytics Page, where you’ll have access to the data and analytics for that neighborhood. It includes average CoC return for both traditional and Airbnb rental strategies.
4. Real Estate Comps
Before you commit to buying a rental property, you should determine whether it’s overpriced, below market value, or fairly priced. The best way to determine this is to run a real estate market analysis. It involves looking at how many other comparable properties in the area―or comps―have sold recently.
To help investors run a quick comparative market analysis, Mashvisor’s calculator automatically generates real estate comps for each rental property for sale on the platform.
Related: How to Easily Find Real Estate Comps
To find out what is good cash on cash return in 2022, watch our video below:
The Bottom Line
Investing in rental properties can be lucrative if you know how to locate properties with a good return on investment. According to an article from Forbes, knowing the cash on cash return of an investment property is crucial in calculating its potential ROI.
If you are looking to find an income property for sale with good ROI, make sure to check its cash on cash return first. Mashvisor’s cash on cash return calculator can help you with this. Using this tool, you can get more than just quick projections for your return on investment.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.