What is Cash on Cash ROI and How You can Calculate it with Examples

I am Antonio and I teach beginner real estate investors how to buy their first investment property. Book time to work with me here: https://calendly.com/investarters/free-consulting-session

Cash on Cash ROI stands for Cash on Cash Return on Investment. It is the percentage of money you will make back in your first year after putting money down for an investment.

There's a formula to calculate it. I will show you a basic example first and then we will do a full example on a real property on how to calculate the cash on cash roi of a property.

The formula is CoCROI = pre tax cash flow from the first year/ down payment + closing costs

To make this more simple it is: how much money you profited in the first year of owning the property divided by how much it cost you to buy the property.

The way you get the first number is by determining the cash flow from the first year.

The cost of buying the property is equal to the closing costs of the home and the down payment you put down.

Here’s an example: 200K home, put 20% down payment. We cashflow 350 a month. Closing costs are 5 percent of the property so 10K. We have 350*12 to get the yearly cash flow = 4200 / 50000 = 8.4% cash on cash return on investment. What this means is we make 8.4% of what we put down every year back on this property.

Now lets do a full example with a real property I own. In the real world, no one will tell you the cashflow up front so you will need to figure that out.

I bought the home for 195,000 and put 25% down. 195000 * .25 = 48750 down payment. Closing costs = Property value * 0.05 = 9750. So the total cost to acquire the property: 58500.

Now cash flow yearly = cash flow monthly * 12. Cash Flow monthly = income - expenses.

Income is just our rental income here from 3 units. Unit 1: 1000, Unit 2: 850 Unit 3: 750 = 2600 a month.

Expenses: mortgage = 723.97

Yearly taxes = monthly taxes /12 = 5055/12 = 421.25

Insurance = 1596 yearly, monthly insurance cost = 1596/12 = 133 a month

Water and sewer cost 60 dollars a month

Tenants pay electric and heat

Property taxes cover the garbage costs

Property management costs me 6% of monthly rent 2600 * 0.06 = 156

Repairs and Maintenance = 8% of monthly rent 2600*0.08 = 208

Capex = 8% of monthly rent = 2600*0.08 = 208

Vacancy = 5% of monthly rent 2600*0.05 = 130

2600 - All expenses(2040.22) = 559.78 / month cash flow * 12 = 6717.36 yearly cash flow

6717.36/58500 = 11.48 cash on cash return on investment.

How do you use it in a sentence?

“This property gives me a 11.48% cash on cash return on investment.”

If it was negative you could say you have a negative 11.48 cash on cash return on investment.

Now, why do you need to calculate it? This is how you use to determine if this is a good investment compared to other types of investments.

For example: the stock market on average will bring you 8% cash on cash roi. So, now I can compare my real estate investment to the stock market and say 11.48% is better than the stock market, so I am going to invest in the real estate instead of the stock market.

You can do this with other types of investments as well comparing it to the rate of return for a business, or bitcoin or whatever you crazy people put money into these days.

Test your knowledge and see what you know and what you don't know in this real estate quiz:

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