A metric that shows how much cash your property generates annually compared to your initial investment, expressed as a percentage.

What Is a Cash-on-Cash Return for Short-Term Rentals?

Explore what cash-on-cash return is and how it impacts the success of short-term rentals.

A metric that shows your annual return as a percentage of your initial investment. Calculate it by dividing your net cash flow (revenue minus all expenses) by your total cash invested. For example: if you invested $100,000 and generated $28,600 in net cash flow, your cash-on-cash return would be 28.6%..

Cash-on-cash return shows how efficiently your investment generates cash flow. It helps short-term rental owners evaluate profitability and compare investment opportunities.

Short-term rental investors, property managers, and anyone making decisions about property investments and cash flow optimization.

In property performance evaluations, investment analyses, and discussions about ROI for short-term rentals.

A cash-on-cash return (CoC return) is a financial metric that measures the profitability of a short-term rental property by comparing the annual pre-tax cash flow to the total cash invested in the property. 

Here's how it works: if you put $50,000 down on a property and earned $5,000 in cash flow your first year, your cash-on-cash return would be 10%. Unlike metrics that look at the property's total value, this one focuses specifically on the money you've invested – like your down payment, closing costs, and any renovations.

To calculate cash-on-cash return, divide your net income by your total cash invested, then multiply by 100. Here's the formula:

Cash-on-Cash Return = (Net Income ÷ Total Cash Invested) × 100

Net income is your rental revenue minus all expenses:

Minus operating expenses (utilities, cleaning, maintenance, etc.)

Initial setup costs (furnishing, repairs, etc.)

For example: If you bought a $400,000 property with $120,000 total invested ($100,000 down payment + $20,000 in closing/setup costs), and generated $75,000 in revenue with $46,400 in total expenses ($20,000 operating + $26,400 mortgage), your net income would be $28,600. This gives you a cash-on-cash return of 23.8% ($28,600 ÷ $120,000 × 100).

For short-term rentals, cash-on-cash return is useful because it helps you see how well your property performs with regular bookings. This metric is especially valuable for:

Evaluating profitability: It shows how efficiently your cash investment generates income.

For example, calculating the cash-on-cash return helps assess the value of a vacation rental by showing how much income it generates compared to the cash invested. 

Comparing properties: It allows investors to weigh short-term rentals against other investment options like long-term rentals or stocks. 

Planning finances: It helps set realistic financial goals and monitor performance over time.

A good cash-on-cash (CoC) return for a short-term rental property is typically 10% or more, assuming standard financing, expenses, and quality investments in design and amenities. 

However, there are some factors that affect a “good” CoC return:

Location: High-demand tourist areas generally yield better returns.

Financing terms: Down payment size, interest rates, and loan terms impact your return.

Management style: Self-managed properties tend to have higher returns than those managed by third parties.

Operating costs: Expenses like cleaning, maintenance, and utilities can reduce profitability.

Market conditions: Economic trends, seasonal demand, and local regulations can also play a role.

Ultimately, what’s considered good depends on your investment goals and market strategy. Read more about what a good cash-on-cash return is for a vacation rental property.

What Is a Cash-on-Cash Return for Short-Term Rentals?

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