Cash On Cash Return Explained / Real Estate Investing
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- čas přidán 9. 09. 2020
- This video explains what cash on cash return is and how to calculate it!
Chandler David Smith has been investing in real estate for the last seven years. He currently owns 99 doors of rental real estate and in this video, he shows you what a cash on cash return is. He explains how you can use the cash on cash return to evaluate a property. This video helps you understand how you can use cash on cash return when investing in real estate.
#cashoncash
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Man I've never been so motivated to invest after watching your videos.
Grant Cardone. Thank me later
I agree!
BiggerPockets buy me a steak dinner later
ROI is wealth, but cash on cash is freedom!
Please explain further. I would appreciate it
@@jdjewellpa Sure - ROI is return on investment, which includes principal paydown, appreciation, and other stuff that isn't technically "money in your pocket." While your wealth on paper is increasing, you can't necessarily pay for your expenses or become truly free with just paper wealth. In order to access all of your wealth, you typically have to liquidate your investment, which eliminates or reduces your revenue stream(s). This isn't to say that wealth is bad, but it doesn't technically get you to freedom _now_.
Compare this to cash on cash, which refers to the actual cash you are taking home over month. This cash can be used for anything, like paying your expenses and becoming financially free _now_.
Building wealth and building cash flow are both very important, but building cash flow is what actually unlocks financial freedom.
@@JackDuffley I totally see what you mean now. Jack, thank you very much for taking the time with that in depth explanation. ROI is wealth, but cash on cash is freedom! I 100% agree!
@@jdjewellpa Awesome! No problem
Thank you for this breakdown! I've been looking for a simplified explanation.
You're literally the best Chandler thank you so much for explaining this!
Think it would depend on what kind of city you're in.
In Canada's top tier cities like Vancouver and Toronto, you cannot even get positive cashflow on rental properties. You mostly have to bank on capital appreciation in the longer term, or ROI metric (counting principal paydown as part of your return) in the shorter term.
Plus, cash on cash would always bias you towards having a smaller mortgage.
Explaining terms like these goes a long way!! Awesome video
I'm so thankful your explaining this much easier way to figure out your numbers. The ROI , etc had me so confused it sterred me away from wanting to start investing. Now after learning this I'm sooo excited to start! And thankful for your app! Wow what great benefits your channel offers all of us..
Awesome video man. Just phenomenal. Very happy you made this and it was super informative. Appreciate it!
So good! Thank you🎉Very clear
Great explanation!
Another great video!
Good old cash 💰 on cash 💰 return. One ☝️ of the main points before investing. Good stuff 👍
Hey Chandler, really appreciate your videos for new investors! I was wondering if you could make a video about screening tenants/what to look for and how to deal with evictions expenses etc?
Sign up for a tenant screen service, it is worth the cost. Believe me. Have them fill out a basic tenant application, AND VERIFY, all the information that is on it. Especially employment, and previous landlord info. Call them. I cannot tell you how many people applied for my places over the years that were just or in the process of being evicted, and the employment and income was completely made up.
I get asked about this one too - a lot! Great explanation 🤑
How do you explain it?
Thanks for sharing. This has helped me in my deals 👍🏻🏡
Newbie here. Recently licensed in Maryland...a ton to learn. Solid content here, much appreciated. Liked and subscribed
I really enjoy all of your content, can’t wait till more! U inspired me to make my own channel about finance, stocks, business, real estate and more! I’m 13 with about $1700 in stocks
I respect the hustle but people don’t come to the comments to look for self promotions
Henry Collins thanks man
The nice thing is that when inflation kicks in on those rents, in a few years, your monthly cash flow can bump up $100-$200 bucks. I had this happen on my duplex. The rents went from $1,150 to $1,400 in a 3 year period. I was shook when the property management company told me that.
Poor tenants😢
Beautiful bro congratulations Vanilla. And tenants have the same opportunity to purchase property just as anyone else’s their tenants for a Reason because they obviously don’t have the credit or money if they don’t have credit it’s because they don’t pay their debts back . And if they don’t have the down payment then they obviously don’t save . No pity here take charge of your own life . you owe you no1 else
Like you mentioned it depends on investing style. Since I'm not retired or need the cashflow I look for higher appreciating properties with lower cashflow than what you suggest. Very similar to how I invest more in growth stock than dividend stocks. In retirement I plan to change to more of a cashflow investing strategy but while young and working I believe growth and appreciation are the right approach to getting a higher net worth. But like said this really comes down to each person's goals and comfort level with each investment type. Thanks for sharing good content.
Thank you!
I’m digging the bookshelf color coordinated in the back with “Rich Dad Poor Dad” -reading that now
Hello! Can you do a video on the books on your book shelf and why they motivated you to invest in real estate? Thanks.
Amazing video.
You include mortgage in your cash flow calculation, whereas others simply equate it with NOI. I feel like that’s a distinction that needs to be highlighted.
Great video 👍
Honestly great job explaining! Very clear and no extra words. Thanks :)
Hey chandler! I’ve been following your channel for a while now. Awesome content!! I have a question about finding my Cash on Cash return. I’ve just started using your spreadsheet off of your website( thank you!!)If I find an investor to bring the down payment for me, how would I plug in the numbers? Would I just subtract what the down payment from “purchase price” and then put zero in the “down payment” box?
I’m glad I’m the only believes that cash on cash return is king. For me appreciation, taxes, mortgage pay down are all just icing on the cake.
Same! 100% agree.
So its a good thing right? What if the tenant doesn't want to pay rent and leaves? Then ur screwed
@@OmarLopez-kh3dx that’s why you have more than one rental. You minimize risk by diversifying.
@@WendyMaysIHouseofFI if u get another rental property, you'd have to worry about that mortgage itself wouldn't you? Sorry. Im learning and studying as much as I could
@@OmarLopez-kh3dx Yes. But that’s why when you are looking at prospective properties you want to make sure they will cash flow enough every month to cover all of the expenses plus setting aside $ for other future costs (like vacancies/repairs/capital expenditures etc...) then you keep repeating that process with each rental. You also want to make sure you have reserves that will cover vacancies. You never want to be in a position that 1 tenant not paying rent is going to put yourself in financial jeopardy. Make sense?
TIM FERRIS BOOK BACKGROUND!!! Fellow real estate dude and Timothy lover! Thumbs up for two reasons now!!!
Do a video on Cap rate too!
Hi Chandler, I'm doing a course through IREM, and they use BTCF. Which makes less sense to me. Is there any logic behind this that I'm not seeing?
I have 2 questions. Question 1 What about a deal where it is 100% seller financed or creative financing is in play where there is minimal to no down payment? How does that get calculated? Question 2 Could share which software you use for your videos, mic and camera. The video looks really great. I want to make hobby videos, and I like the interactive stuff you included. Thank you in advance.
Hey what are your thoughts on buying your first property in this market? So far it seems that in a environment with high rates and high prices it’s becoming extremely challenging finding a property with positive cash flow even when putting 20% down.
Are avg cash on cash returns regional? I live in NYC/NJ area... Cant seem to find anything above 5% here
Hi mate , one question
When u say mortgage as an expense - do u mean only the interest part of it ???
Earlier in the video, you mentioned that you need to factor in all of the costs needed to arrive at the income level that generated a 13.3% cash on cash return you forgot to enter in any renovation expenses to arrive at that number could you update a video that factors in a real scenario?
So we calculate the net cash flow AFTER debt service?
Soooo just to clarify. Let’s say I’m doing the first time buyer (live in for a year), and put 3.5 percent down. Obviously my COC is going to be great almost no matter what once we rent it out BUT would the only risk be possibly being over leveraged a bit? Or should you only use COC for certain down payments (like greater than 10 or 15 percent)?
I’m just wondering the drawback of using this metric on a 3.5 down property. Obvi add in PMI and make sure all numbers are accounted for but at the point if you still cash flow once it is a rental does it matter the down payment?
I'd have to put down a huge down payment (well north of 20%) to hit 10% ROI in my area.
Very helpful video! Thank you
How do you find these kinds of deals on properties though? I see places for around $350k (that could still use some work) and would only rent out for $1500.
Edit: I should add, I live in a neighboring state. I imagine our markets are very similar. Prices have soared 25% in these past few years.
Yikes...
What is better on a countrie with high interest rates 7 yeas loan or 25?
Do i include Inital investment if all of that is covered by loan?
A negative COC can be a good thing ?
I used your calulator and gave me wrong coc return
😄😄😄
Get that cash, don’t speculate!
What if you are financing the rehab cost? Does that count for this. Or would you only count rehab cost if you paid for it cash out of pocket like with the down payment and closing cost?
If you financed it then it would go to your monthly expenses subtract the monthly payment of the rehab to the monthly rent.
I'm looking through the comments with no Answers to questions. Does Chandler ever respond to people?
Chandler
He got tired of waiting for Conor and went into real estate.
Do i have to put in my expenses vacancy rate? and mantenince?
Yes.
So what does COC means?
Dayam I am only at 5.4% UGH
Wouldn't you want more like a 20% the fact is going to take like 7.5- 10 years before you start breaking even. Makes me wonder is it even worth it? I am rookie but I don't see the benefit if you have to wait a whole decade before you start reaping the money benefits. maybe something like 5 years or less would be a little bit more ideal.
Content doesn't start until 1:23
🤔
Shyt this means this isn’t any property in LA can produce cash flow with only 20% down. I had a condo with 55% down that barely produce any cash flow.
Why when I Divide 3600~27,000 I get 7.5🤔
3600/27000 not 27000/3600 😅
I get .1333333333 At least the numbers are the same just need to move the decimal for a percentage.
Income taxes are not calculated in Cash on Cash return !
Wrong the 300 is your noi. We do not include debt service in our expenses
Fettuccine on Fettuccine Returns
1.25x
Holy crap those hands are awkward
He did the math, but he really didn’t explain what cash on cash return means.
2:15
Dude explain what it means 😂 all u did was show the equation and said buy at a 10%. What does it actually mean?
Is it just me or does chandler look like he just burned a fatty?