Cash-on-Cash Return: What Real Estate Investors Need to Know

How to calculate cash-on-cash-return

Put simply, your cash-on-cash return is your annual cash flow (pre-tax) divided by your total cash investment. 

To calculate your pre-tax cash flow for the year, you’re going to want to add up your gross rent intake for the year, as well as any other income you might receive from the property, such as incremental rent for parking spaces or storage units. You’ll subtract your operating expenses (property manager, handyman, plumber, gardener, other regular upkeep) and annual mortgage payments, if you have a mortgage, to get your net operating income. 

 You’ll divide this number by all the money you initially invested into the property, which is your total cash invested. This could involve your down payment (or the total amount of the property if you paid it in cash), closing costs, and any repairs or renovations you made before the property could be rented out. The resulting percentage will tell you your cash-on-cash return.

Cash-on-cash return stays roughly consistent as long as your income from the property and investment into it remain consistent. If your income increases because you’re able to charge more rent for it, that would drive your cash-on-cash return up. If you have to invest more money into an unexpected big repair, your cash-on-cash return will go down.

https://bungalow.com/articles/understanding-cash-on-cash-return-in-real-estate-investment