Why Successful Renter Property Owners Focus on Cash-on-Cash Returns
Monday Jan 03rd, 2022
The world is changing at a rapid pace, and it's becoming more difficult to predict what might happen tomorrow. Investors are much better off aiming for cash-on-cash returns because they are less susceptible to market fluctuations.
Successful renter property owners know that the only way to make money in the short-term is by purchasing properties with cash-on-cash return. They want to make sure they are maximizing their cash flow, so they will purchase properties with a high cash on cash return.
Let’s start with the basics. Cash-on-cash return refers to the ratio of cash received from a property to the amount of cash invested in it. It’s a useful metric for investors to look out for when they are investing in real estate.
What are Cash-on-Cash Returns?
Cash-on-cash returns are one of the most common metrics real estate investors use to evaluate which investments will provide them with the best return.
In general, cash-on-cash returns refer to the annualized rate of return on a property investment, divided by the amount of cash invested into that property. In other words, it is a calculation that measures how much money an investor would have made from an investment on a yearly basis if they had not put any money down on it.
It is an important metric for investors to take into account when evaluating their next real estate investment opportunity. This metric allows them to compare different properties, making informed decisions about which ones they should pursue.
How are Cash-on-Cash Returns Calculated?
The success of a renter property investment may depend on more than just the return. One should be aware of the cash-on-cash return, how it is calculated, and how it impacts the overall performance of an investment.
In order to calculate a cash-on-cash return, one needs to know what is his total net income from all of his rental properties together? How much money did he invest into those properties? And then divide that by that total amount of money he invested.
So for example, if someone invested $10,000 and earned $1,000 in rent from each property on average each year for three years before selling them off for a profit of $50,000 - their cash-on-cash return would be 50%.
Benefits of Cash-on-Cash Returns for Investors
There are many benefits to investing in real estate. One of them being that you can amortize your mortgage over a long period of time and pay a low interest rate as opposed to other investments that offer a much lower interest rate over a short period of time. This means that you can invest in something, like real estate, that will appreciate in value and generate more income without needing your money for a long time because it has been invested for you already.
Here are some other benefits of Cash-on-Cash Returns for Investors:
· One major benefit of Cash-on-Cash Returns for Investors - your return is generally higher than if you put money into the stock market;
· Increased income from rental properties;
· Fewer risks associated with mortgage loans;
· Potential tax advantages;
· More liquidity in investments.
That’s where I come in. Depending on the property type you have or are planning to buy, I can help you customize the perfect plan for short and long term goals moving forward in this new year. Contact me here for a free consultation.