Posted about 5 years ago

Good Return on Investment: A Cash on Cash Return

Cash on cash return (CoC return; aka Equity Dividend Rate) is used in real estate represent return on investment.

1. Total investment: is the total cash you put in to acquire and operate a rental property. This include acquisition cost, closing cost, fixing costs, and loan interests with fees.

2. Cash on cash return without a loan: remember to factor in the fixing and closing costs. So, if your acquiring a place for $250,000, you would need to add 5% closing and fixing costs. You would then expect to spend one third of your annual rental income to operate the property such as water, garbage, sewer etc. The net return on investment divided by the total cash investment would give you the percentage of cash on cash return.

3. Cash on cash return with a loan: with a loan, you would have to factor in the down payment in addition to closing and fixing costs. From the annual rental income above, we will deduct the service fee on the loan to get an exact net operating income. The cash on cash return will be the percentage after dividing net operating income to the total cash investment. The total cash on cash return also affected by the loan amount, monthly rent amount, repairs and unexpected circumstances.

4. A good cash on cash return: there is no definite answer since cash on cash return is different from property to property due to location, rental income amount, occupancy status, and investment approaches. It is said that cash on cash return only shows if the property is worth investing with such amount on return on investment. However, it is always crucial to perform the calculation in CoC to get a good picture on what you are investing and what you would get back.

5. 5 U.S cities with highest cash on cash return: these are Atlanta, Saint Louis, Las Vegas, Charlotte, and Washington, D.C. It is worth to look more closely into these cities when performing your search. The return on investment encompasses about traditional and vacation rentals (i.e. Airbnb).

Topics: Real estate, rental properties, investment, cash on cash return