One of the criteria I use for buying an income producing property is the cash on cash return calculator. By finding the cash on cash return for your property, you will know how much a return on your money you will make in one year.
Listen to the Cash On Cash Return podcast episode here:
When you calculate the cash on cash return for your property, the higher the percentage, the better. The entire cash on cash calculation is between how much money you spend buying and fixing up the property to how much money you will make on the property in one year.
It is actually very easy to get the cash on cash calculation for each property. I created this easy calculator for you to use in your rental property investing.
Other ways to calculate the profitability of your real estate investment:
Instructions for the Cash On Cash Return Calculator
Use the Cash Flow Calculator to get the values used in the Cash on Cash Return Calculator. Don’t worry, there is a video on the calculator page to help walk you through everything.
Once you have those values from the Cash Flow Calculator, you will need those to fill in the Cash On Cash Return Calculator.
Here is a list of values you will need to put into the calculator in this order:
Total annual rents
Total loan amount to buy the property
Down payment amount you will be putting down on the property to get the loan
Any and all closing costs associated with the purchase of the property
Seller concessions (any money credited back to you from the seller)
Rehab and repair costs to get the property in rent ready shape
Any other costs you will incur BEFORE the property is rented
Once you put these numbers into the calculator, the “Total Cash Invested” and the “Cash on Cash Return %” will be automatically populated for you.
The “Cash On Cash Return %” is the return on your money you invested in 1 year. Obviously you will continue to own the property year after year so you this % will increase year over year.
What Is the Cash On Cash Return?
This is the % return on the total amount of money you are spending on a rental property.
Here is a very lose example of what Cash on Cash Return would look like if you bought a stock.
If you buy a Apple stock for a total cost (including fees) of $20,000, you would receive shares in Apple worth $20,000. Now, if you sold the stock within the year for $22,000 because the value of the stock went up, then you made a profit of $2,000.
Purchase Price: $20,000 Sale Price: $22,000 Total Profit: $2,000
$2,000 profit of $20,000 investment is a 10% return on your money you used to buy the stock.
So, the cash on cash return is the % amount of money you will make in one year from the amount of money you spent to make the profit.
Annual Cash Flow Calculation For Rental Property Investing
The main way to make sure you are buying a good property is the monthly cash flow. I tell all of my real estate coaching students to buy properties that make them $250 or more each month in passive income.
Now, if you had a property that made $250 a month, the yearly return would be $3,000.
Here is the calculation: $250 x 12 = $3,000
If you need help to find out your monthly cash flow, go to the Rental Property Cash Flow Calculator to get that number. Once you have the yearly income, you can easily use the Cash On Cash Return Calculator.
Other Calculators for Real Estate Investing
As stated before, you want to invest in rental properties to make cash flow. Calculate your cash flow with the Cash Flow Calculator.