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How to Use a Cash-On-Cash Calculator for Success: Part 1

cash-on-cash calculator

Summary: Do you know how to use a cash-on-cash calculator to decide if you should purchase a property? Do you know what values to include and where to find them? This three-part series covers why a cash-on-cash calculator is a vital tool in any real estate investor’s toolbox and explains where each variable of the calculator should be sourced. Finally, in part three, we cover an example property and explore whether it’s a good deal. 


When considering putting an offer in on a property, most real estate investors use a cash-on-cash calculator (download a free copy of ours below) to determine whether the property will perform to their expectations.

Download the Short Term Rental Cash-on-Cash Calculator

Cash-on-cash (COC) calculations, however, only have value if you use accurate numbers. That’s because the more accurate your numbers are, the more likely your property will cashflow exactly as you predicted. Being off even a couple hundred dollars on your calculations can ruin a property’s performance. 

When Kenji and I first started investing, we created our own cash-on-cash calculator. And this is the same cash-on-cash calculator we’ve been using for our entire real estate investing career. We’ve even now started using it on our larger property purchases. 


Why did we create our own rather than using one that already existed?

We created our own cash-on-cash calculator for two main reasons: 


1. Many of the cash-on-cash calculators out there are really complex.

They factor in a ton of variables. They extend out for years after you purchase the property. Some have tons of assumptions built into them based on how you think the market is going to change.

In our opinion, all those numbers and variables aren’t necessary, especially for a small multifamily property purchase. We like to keep things simple, to keep the barrier for diligently doing the calculations on a consistent basis, very low. 

Now, if you are an investor who invests in complex deals or large multifamily purchases, this doesn’t apply to you. But, for us long-term, small multi-family, buy and hold investors, the complexity is just not necessary. 

Because we include only the basic needed components in our cash-on-cash calculator, we can run our calculations quickly so we can move fast and lock up a good deal. In real estate investing, making a decision and taking action to lock up a property (and then doing the due diligence during the inspection period) is extremely important to your success as a real estate investor.

By keeping things simple and doing the cash-on-cash calculation only for the first year, we know that years two and beyond will only have better performance (because a key component of our strategy is to increase the performance of all of our properties over time). Yes, we don’t take the time to calculate how much better that performance will be. But, honestly, it’s just not that important in making the upfront decision.

It’s like we say in medicine: if getting another test is not going to change management, why order it?


2. All of the cash-on-cash calculators we evaluated did not take into account the lease-up fee.

When property managers rent-up a property to a new tenant, they usually charge a “lease-up” fee that ranges from several hundred dollars to one month’s rent. If you’re leasing a unit to a new tenant every year or two, this charge really adds up. Early on we realized that most cash-on-cash calculators leave out the lease-up fee. This makes the numbers look artificially better than they will be in reality, especially if you have a high turn-over rate. Therefore, we built this option into our cash-on-cash calculator (link) so that we could take that variable into account. 

Another great benefit of adding the lease-up fee is it actually allows us to evaluate the property manager’s fee structure. And, sometimes, it will lead us to use one property manager over another. I’ll show you how that works when we go through a deal in part two of this article. 


Do I need to learn how to use a cash-on-cash calculator?

The answer is: absolutely YES. You MUST do your own cash-on-cash calculations each time you consider purchasing a property. 




Do not rely on others, be it your real estate agent or wholesaler or turnkey company, to do the work for you. This is because there will undoubtedly be missing assumptions or under-estimated expenses.  

I am not saying that these will be deliberate, because most times they are not. It’s just that your agent does not necessarily know the costs of property management. For example, so he/she will often underestimate them or just leave them out altogether. 

Your incentives are not always aligned. An agent, wholesaler, and turnkey company want to sell what they see as a great property. It’s usually a short-term gain for them (although a great investor agent will see your interaction as a long-term play since you will come back to him/her for more purchases if the first one goes well).

You want to carefully evaluate the property in comparison to every other property out there to make sure it will meet your expectations for the long haul. These are very different ways of looking at an investment. 

Let me say it again: relying on others to do your numbers is an extremely dangerous, high-risk choice. 



The second reason to do your own calculations is to get an apples-to-apples comparison among all of the properties you evaluate. 

Let’s say you have several agents working for you in a market. They’re all sending you deals, but using different cash-on-cash calculators. How do you know one deal is better than another? The answer is: you don’t. They’re building in different variables (or, more likely, they’re not even running the cash-on-cash calculations!). They’re also highlighting what looks most attractive about the deal. 

What you need to make a good decision is an apples-to-apples comparison between a property you are evaluating now versus a property you looked at last month versus a property you pulled out of last year. In order to do this direct comparison, you must use the same cash-on-cash calculator every single time.

It’s like reading an EKG. Do you think reading an EKG using a different approach every time would work out well? Or do you think using the same approach every time will allow you to spot patterns and differences more easily?


Keep Yourself Honest

Another reason to run the cash-on-cash calculations each and every time is that it will keep you honest. It will keep you from buying a property for emotional reasons, because you will have to acknowledge the unbiased financial performance of the property. 

Now, you can still try to fudge the numbers and see if you can make it the overall performance work. But you’re going to have to go through that process of putting in wild assumptions. Hopefully, that will start to give you an anxious, sick feeling and you’ll catch yourself and walk away from the deal. 

If that happens, don’t beat yourself up. Getting emotional about a property sometimes happens to the best of us, especially when we’re excited about how a property looks or we start to think about possible market appreciation.

Don’t fall in love with the property. Fall in love with the numbers.



A third reason you need to do your own calculations is that you should do your cash-on-cash calculations several times throughout the process of buying a property. 

Yes, you do them upfront to decide if you want to lock up a property. But, then once you are in the due diligence period and have more accurate numbers, we would recommend running the numbers through your cash-on-cash again. 

It’s a simple risk-mitigation. The more accurate the data you put into the cash-on-cash calculator, the greater the odds that your property will perform as expected. 

We’ve walked away from a lot of deals during the due diligence period. This is because, once we have more accurate data regarding the rehab costs and actual rents (it’s amazing how frequently the sellers agent will list INACCURATE rents in the MLS listing or tell your agent rents that are just not true), we’ve plugged the updated numbers into our cash-on-cash calculator and seen that the deal no longer meets our minimum of financial performance. 

While we always use our updated cash-on-cash numbers to come up with a new necessary sales price for us to move forward with the process, and use that to try to negotiate with the seller, sometimes the sellers just cannot meet the price reduction that we require. Then we walk away from the deal knowing that it was the right choice. The fact is: the numbers just didn’t work. 

And what we and you are doing is running a business. So we must make decisions based on economic return.



A final reason to use the cash-on-cash calculator is to facilitate communication. Real estate investors, like physicians, speak their own language when discussing deals. Cash-on-cash is one of the most important terms that you must understand to speak intelligently with other investors.

In the course community for our online course, Zero to Freedom Through Cashflowing Rentals, all of our students go through a cash-on-cash calculation each and every week. This is to ensure that they know how to use the COC calculator in a variety of situations, where to find all the variables and how to apply it when evaluating their own deals.



One of the most important outcomes is that our students learn the same language. This facilitates helping each other evaluate deals across the country both while taking the course and afterward in our Membership community. 

In real estate, the more people you have looking and thinking about a deal the better. The ability to have multiple people checking your assumptions and giving you additional insights is invaluable. It’s how you avoid making mistakes.

Can you imagine the value of having numerous investors looking over your deal? That’s literally what happens on a daily basis in our course and membership communities. And it’s all a result of everyone speaking the same language, being facile with the same calculator and being like-minded and focused on the abundance mindset, helping each other out. 

In Part 2 of this series, we’ll dig into the variables that make up the COC calculator.

In Part 3 of this series, we use the COC calculator to evaluate whether a sample property is a good deal.

Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD  Facebook page and join our Doctors or Professionals  group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.


Hi, we’re Kenji and Leti

we provide coaching and mentorship for doctors and high-income earners

Several years ago, we were newlyweds working as full-time hospitalists. On paper, it looked like we had everything: the prestigious careers, the happy marriage, the luxurious rental home, the cars, etc.

But in reality? Despite having worked for several years, we had very little savings. Despite our high income, we had very little freedom in terms of time or money.

One thing was clear: we had to do something.

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