Cash on cash return calculator is a useful tool for real estate investors. It helps them determine the annual profitability of their investment. This is done by measuring the ratio between the annual pre-tax cash flow and the total equity invested in a property.
This calculation takes into account not only the initial investment. It also includes additional costs such as financing fees and closing costs.
If you want to learn more about the cash on cash return calculator and how to use it, keep reading this guide. That way, you can make informed decisions when it comes to your real estate investments.
So, read on, and let’s get started!
Gather Necessary Information
Before you can use the cash on cash return calculator, you need to gather all the necessary information. This includes the total equity invested, annual pre-tax cash flow, and additional costs.
The total equity invested refers to the total amount of money you have put into a property. This includes your down payment as well as any closing or financing costs.
The annual pre-tax cash flow is the total amount of money you receive from the property in a year. This includes rental income, as well as any other sources of income from the property.
Additional costs refer to any expenses related to acquiring or maintaining the property that were not included in the initial investment. This could include things like repairs, maintenance, and property management fees.
Enter Purchase Price and Other Information
Once you have gathered all the necessary information, you can now enter it into the cash on cash return calculator. The first step is to input the purchase price of the property.
Next, input any additional costs that were not included in the initial investment. This could include things like closing costs or financing fees. Make sure to input all the information accurately to get an accurate calculation of your cash on cash return.
Enter Loan Details
If you have taken out a loan to finance your investment property, you will also need to enter the loan details. This includes the interest rate, loan term, and any other relevant information.
Interest Rate
The interest rate is the percentage of your loan that you are charged as interest. This can vary depending on factors such as your credit score and the current market conditions.
Loan Term
The loan term refers to the length of time that you have to pay back the loan. This is typically expressed in years, with common terms being 15 or 30 years.
Other Loan Details
You may also have the option to enter other loan details, such as any additional fees or points associated with the loan. Make sure to include all relevant information for an accurate calculation.
Input Rental Income
The next step is to input the estimated rental income for the property. This can be based on market research, comparable properties in the area, or previous rental income if you already own the property.
This will help determine the annual pre-tax cash flow and give you a better estimate of your potential return on investment. The rental income should be entered as a monthly or yearly amount.
Account for Operating Expenses
Operating expenses refer to all the costs associated with maintaining and managing the property. This includes things like insurance, property taxes, utilities, and maintenance costs.
Make sure to include all relevant expenses to get an accurate calculation of your cash on cash return. Let’s say, for example, you hire a professional painter like House Painter in Frederick — make sure you know how much you are being charged. That way, you can include it in the additional costs section.
Calculate Net Operating Income
Once all the necessary information has been entered, the cash on cash return calculator will calculate the net operating income (NOI). This is the total annual pre-tax cash flow minus all operating expenses.
The NOI is a key factor in determining your cash on cash return and should be considered carefully when making investment decisions. You can take advantage of the calculator to easily see how changes in operating expenses can affect your overall return.
Determine Cash Flow Before Tax
The cash on cash assets calculator will also ask for the annual pre-tax cash flow. This is the total amount of money you receive from the property in a year. So, now it’s time to determine the cash flow before tax. This is done by subtracting any debt service (loan payments) from the NOI.
This will give you a more accurate picture of your potential return on investment. This is because it takes into account any financing costs associated with the property.
Calculate Cash on Cash Return
The cash on cash return calculator will calculate the ratio between the annual pre-tax cash flow and the total equity invested. This will give you a percentage that represents your potential annual return as a percentage of your initial investment.
This information can be extremely valuable for real estate investors, as it helps them make informed decisions about their cash on cash investments. With this knowledge, they can determine whether a property is worth investing in and make adjustments to maximize their returns.
Analyze Results and Make Informed Decisions
Once you have calculated your cash on cash return, take the time to analyze the results and make informed decisions about your investment. Consider factors such as the current market conditions, potential for rental income growth, and overall profitability.
If the cash on cash return is lower than expected, you may need to reevaluate your investment strategy or consider different properties. On the other hand, if it is higher than expected, you may have found a profitable opportunity that warrants further investigation.
Learn How to Use a Cash on Cash Return Calculator
The cash on cash return calculator is a valuable tool for real estate investors. By gathering the necessary information and accurately inputting it into the calculator, investors can determine their potential annual returns as a percentage of their initial investment.
Not only does this calculation take into account the total equity invested, but also additional costs such as financing fees and closing costs. So, whether you are a seasoned investor or just starting, learning how to use the cash on cash return calculator can help you make informed decisions and maximize your returns.