Understanding Cash on Cash Return

Using and understanding real estate investing calculations before securing a deal can be extremely beneficial for real estate investors.

Cash on cash return, sometimes referred to as CoC or CCR, is a very simple and useful financial tool for real estate investors. It is a calculation that can help investors measure the amount of cash flow, or total cash earned, on the total equity invested in a property. This can be highly beneficial for investors to calculate prior to a deal to compare the potential returns of various investment properties.

How to Calculate Cash on Cash Return

There are two formulas that can be used for calculating the cash on cash return for a real estate investment. CCR will always be demonstrated as a percentage, not to be confused with cash flow which is indicated as an amount.

  1. Take the pre-tax cash flow earned annually, excluding principal debt payments, and divide it by total cash invested to get the CCR.

  2. This calculation includes principal debt payments and is calculated by the pre-tax cash flow earned annually, after interest payments, divided by the total cash invested.

The calculations use pre-tax formulas because the amount of income tax paid will vary from investor to investor. This makes it easier to compare results across different situations.

Cash on Cash Returns vs. All Other Real Estate Investing Metrics

Net Operating Income (NOI) 

This metric is used to give investors an idea of the true cash flow of a rental property. One way this tool differs from CCR is that debt service is not included when calculating NOI.

Internal Rate of Return (IRR) 

This is a more complex calculation that measures the total percentage return to an investor based on all net cash flows received during the investment period. Investors want to see a high IRR percentage as that usually means a more profitable investment.

Cap Rate 

The capitalization rate is used to compare the returns of similar properties in the same market as the property the investor is looking at. To calculate the cap rate percentage you must know the NOI and divide it by the market price or current market valuation.

Return on Investment (ROI) 

This simple calculation measures the return of an investment compared to the cost. To find the ROI of a property you would subtract the cost of the investment from the current market value, and divide by the cost of the investment.

Each of these calculations can be very useful for investors and can be utilized prior to committing to a deal, increasing the chances of a successful outcome. Understanding these calculations can be very helpful to not only the investor, but also for the lender as they prepare a loan. Having the knowledge on how to use these metrics to your advantage can set you up for success in each step of the real estate investment process!

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About CALCAP Lending

A division of CALCAP Advisors, CALCAP Lending benefits from the expertise of a seasoned team of professionals with extensive, successful track-records covering a variety of disciplines and leading large, nationally-recognized institutions. A private money direct lender, CALCAP Lending provides short to mid-term financing for property investors and businesses looking to purchase, refinance, renovate, and construct residential or commercial properties.

Lending FAQs

You've got questions, we've got answers.

What is private money lending?

Private money lending is a collateral-based lending strategy that is often associated with shorter terms and more attractive features. A private money loan offers more flexibility than a conventional mortgage or bank loan.

How does a private money loan work?

Private money lenders provide financing using money from private entities. Private money loans often work as bridges to help investors gather funds to achieve their short term real estate goals, but long term, permanent options may also provide.

Why would I choose a private money lender?

There are many advantages to using a private money lender for your real estate investments! Private money lenders can be more lenient when it comes to borrower credit issues, often there are no prepayment penalties, you can leverage your cash to buy multiple properties, and private money loans are quicker when compared with institutional loans.

Can I get prequalified for a loan?

CALCAP has a responsive loan team who are able to prequalify you. Contact a loan specialist at 833.816.5580 to get started.

How long does the lending process take?

Private money lending can be a quick and painless process. From start to finish, 30 days is common, however, turn around times can be as short as 10 business days.

Can I still be approved for a loan if I have bad credit?

Generally yes, we understand that people have temporary financial issues that come up, and we want to work with you to help you rise up financially to a better place. Offsets to credit concerns may include experience as a real estate investor, good cash reserves, and/or larger down payments.

I am a broker or investor, how can I work with CALCAP?

Business is built on relationships. Ours is no different. CALCAP Value and Preferred Partners receive exclusive rates and services. For more details and to submit your application, visit our partners page.

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