Why Cash-on-Cash is Important
As a rental property investor, it's helpful to know your current return on the total amount of cash you have contributed to a particular Portfolio or Property. This allows you to easily compare investment results across assets of various sizes and types. When properly calculated, the cash on cash return is a highly accurate indicator of actual investment performance that takes into account cash flow, your actual cash into the deal, and the impact of any debt.
To learn more about why investors love knowing their cash-on-cash return, read Why Successful Rental Property Owners Focus on Cash-on-Cash Returns on the blog.
Where to Find Your Cash-on-Cash Return
You'll find the Cash on Cash Return metric on your Stessa dashboards, at both the Portfolio and Property levels. It's located on the left side underneath the Net Cash Flow chart.
The percentage in the larger font is your calculated return for the most recent full calendar month. Keep in mind that this number can fluctuate significantly due to Capital Expenses, non-payment of rent, the specific timing of rent payments, and any number of other surprises.
Underneath the percentage is your total "cash in" figure, which is provided for reference and is the denominator used in the return calculation, discussed below.
We're also working on adding a trailing 12-month calculation, which will bounce around less frequently and give you a better idea as to how your asset has performed over a longer period of time.
Click "View Monthly Cash on Cash" to open up the chart and see how your monthly cash-on-cash return has changed over time. Hover your cursor over any historical data point to see the actual percentage.
How Stessa Calculates Cash-on-Cash
Here's the formula Stessa uses to calculate your cash on cash return:
Net cash flow for the month
(after all debt service, not including transfers)
Acquisition price, plus closing costs, less original mortgage balance, plus capex within 60 days of acquisition
While some investors may calculate cash-on-cash return slightly differently, perhaps by adding principal payments back into the numerator, the calculation shown above is what's currently displayed in Stessa.
We plan to add additional options and toggles in the future, so that you can easily customize the math to your specific preferences.
Troubleshooting Your Cash on Cash Return Metric
To troubleshoot the numerator (net cash flow for the month), you'll want to connect all relevant bank and loan accounts to Stessa. Then make sure everything is categorized and assigned to the correct property.
If a rental income transaction shows as deposited on the last day of the prior month instead of the first day of the month for which it was due, you may want to adjust the transaction date for accuracy. Otherwise, you'll show a high cash on cash return number for the first month and an artificially low number for the next month.
To troubleshoot the denominator, start with your acquisition price. You can check this on the Properties page. Click the small edit icon next to any numbers you'd like to update.
Also make sure all additional closing costs are reflected on your Transactions page and categorized as "Closing Costs."
Next, examine your mortgage set up, to make sure all relevant loans have the correct "Original Loan Amount" entered. To check and/or edit this amount, return to the Properties page, click the edit icon next to the respective "Loan Balance." Then click the edit icon on the "Mortgage" card below the yellow highlighting on the new page. Update the original balance accordingly.
Finally, make sure all of your capital expenses have been entered accurately via your Transactions page, with the correct dates. Any capital expense transactions incurred within 60 days of your original acquisition date will automatically be added to your "cash in" number for purposes of the cash on cash return calculation. In the future, we may add a "date placed in service" toggle for all Properties on Stessa, which would then allow you to manage the "cash in" cutoff date more precisely.
The cash on cash metric originated as a user request via the Stessa Community Wishlist. If you'd like to contribute further ideas and feedback, please review existing topic threads and submit a new post if desired. If you're having trouble with your cash on cash return calculation, feel free to open a new support conversation via the blue circle at lower right once logged into Stessa.