FINANCE CALCULATOR
Cash On Cash Return
A precise tool.
What is the Cash On Cash Return & How does it work?
Cash-on-cash return is a measure used in real estate investment to determine the profitability of an investment based on the actual cash generated by the property. It does not take into account the time value of money or potential appreciation in property value.
The formula for calculating cash-on-cash return is:
The formula for calculating cash-on-cash return is:
text{Cash-on-Cash Return} = left(frac{text{Annual Cash Flow}}{text{Total Initial Investment}}right) times 100
var = meaning
Annual Cash Flow = Net operating income from the property
Total Initial Investment = Initial cost of the property plus any additional costs like closing fees, renovations, etc.
Annual Cash Flow = Net operating income from the property
Total Initial Investment = Initial cost of the property plus any additional costs like closing fees, renovations, etc.
Parameters
Result
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Frequently Asked Questions
What is cash-on-cash return in real estate?
Cash-on-cash return measures the annual cash flow from a property as a percentage of the total initial investment, excluding appreciation and financing costs.
How do I calculate annual cash flow for this calculator?
Annual cash flow is calculated by subtracting all expenses (like taxes, insurance, maintenance) from the rental income to get net operating income.
What does total initial investment include in this context?
Total initial investment includes down payment, closing costs, and any other upfront expenses required to purchase and prepare the property for rental.
How is cash-on-cash return different from overall rate of return?
Cash-on-cash return focuses solely on the actual cash generated by the property, ignoring factors like appreciation and financing. Overall rate of return considers these additional elements.
Can I use this calculator for properties with negative cash flow initially?
This calculator is best used for properties that generate positive cash flow annually. Negative cash flow can skew the results, making it less meaningful.
How often should I recalculate my cash-on-cash return?
It’s a good practice to recalculate your cash-on-cash return annually or whenever there are significant changes in rental income or expenses.
Does this calculator account for vacancy rates?
This calculator does not account for vacancy rates. You should factor in potential vacancy periods when calculating annual cash flow to ensure accurate results.
Results are for informational purposes only and do not constitute professional advice.