Cash on Cash Return Calculator

How to Calculate Cash on Cash Return

Cash on Cash Return is a crucial metric in real estate investment analysis. It provides a quick way to estimate the potential return on an investment property based on the cash flow it generates relative to the cash invested. This guide will walk you through the process of calculating and interpreting cash on cash returns.

Cash on Cash Return Formula

The formula to calculate the cash on cash return is:

$$CashOnCashReturn = \frac{AnnualCashFlow}{TotalCashInvested} \times 100\%$$

Where:

• $$AnnualCashFlow$$ is the yearly net cash flow generated by the property after all expenses and mortgage payments
• $$TotalCashInvested$$ is the total amount of cash you've invested in the property, including down payment, closing costs, and any immediate repairs or improvements

Calculation Steps

1. Determine the property's Annual Cash Flow
2. Calculate the Total Cash Invested
3. Divide the Annual Cash Flow by the Total Cash Invested
4. Multiply the result by 100 to convert to a percentage

Example Calculation

Let's calculate the cash on cash return for a property with the following details:

• Annual Cash Flow: $10,000
• Total Cash Invested: $100,000

Step 1: Apply the formula

$$CashOnCashReturn = \frac{10,000}{100,000} \times 100\%$$

Step 2: Perform the calculation

$$CashOnCashReturn = 0.10 \times 100\% = 10\%$$

Step 3: Interpret the result

The cash on cash return for this property is 10%. This means the property is generating an annual cash return of 10% on the invested cash, based on its current cash flow.

Visual Representation

This doughnut chart illustrates the relationship between Annual Cash Flow and Total Cash Invested in our example calculation, with the Cash on Cash Return represented as the percentage of Annual Cash Flow to Total Cash Invested.