Is Rental Property Worth Buying? Analyzing Cash-on-Cash Return and ROI

💰Analyzing the potential profitability of a rental property requires calculating the cash-on-cash return and ROI.

🏠Consider the purchase price, taxes, fees, and rehab costs when analyzing the investment in a rental property.

🔢Use Excel templates to set up a simple analysis of the potential revenue, expenses, and monthly cash flow for a rental property.

🏦External financing, such as a bank loan, may be needed to finance the purchase of a rental property.

💡Monitor monthly cash flow to determine the return on investment (ROI) and assess the profitability of the rental property.

How do you calculate the cash-on-cash return for a rental property?

—The cash-on-cash return for a rental property is calculated by dividing the annual cash flow by the total cash investment.

What factors should be considered when analyzing the potential profitability of a rental property?

—Factors to consider include purchase price, taxes, fees, rehab costs, financing, monthly rental income, and expenses such as maintenance and property management.

Why is monthly cash flow important in rental property analysis?

—Monthly cash flow indicates the profitability of a rental property by comparing the monthly revenue (rental income) to the monthly expenses (such as mortgage payments, taxes, and maintenance costs).

Should I consider external financing for purchasing a rental property?

—External financing, such as a bank loan, can help fund the purchase of a rental property. It allows investors to leverage their own funds and potentially increase their return on investment.

What is a good cash-on-cash return for a rental property investment?

—A good cash-on-cash return for a rental property investment depends on various factors, including the local rental market, financing terms, and the investor's financial goals. Generally, a higher cash-on-cash return is desirable.

00:00Introduction to analyzing the profitability of rental properties

01:20Importance of considering expenses and financing in rental property analysis

05:49Using Excel templates to calculate potential revenue and expenses

08:53Calculating monthly cash flow and return on investment (ROI)

13:08Importance of principal payment in the monthly cash flow analysis