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Cash-on-Cash Return: Making Money from Real Estate in Guelph
Joe MacDowell • June 30, 2023
Cash-on-Cash Return: Making Money from Real Estate in Guelph
Investing in real estate can be a great way to make money and build wealth. If you're considering investing in Guelph, Ontario, there's an important thing you should know about called "cash-on-cash return." Let's explore what it means and why it matters for real estate investors like you!
What is Cash-on-Cash Return? Cash-on-cash return is a special way to figure out if a real estate investment is making enough money. It helps us compare how much money we're making to how much money we first put into the property. It's like checking if we're getting a good deal!
How to Calculate Cash-on-Cash Return: To calculate cash-on-cash return, we need two things: the money we're making from the property each year (called "net operating income" or NOI) and the money we first invested. Here's how we calculate it:
Cash-on-Cash Return = (Annual NOI / Initial Cash Investment) x 100
We figure out the annual NOI by subtracting all the costs, like property taxes, insurance, and repairs, from the money we're making from rent and other income. The initial cash investment includes the down payment and other costs when we bought the property.
Why Cash-on-Cash Return Matters in Guelph:
1: Knowing If It's Profitable: Cash-on-cash return helps us see if the property is making enough money. We can compare it to other ways of investing money to decide if it's worth it.
2: Understanding the Risk: Cash-on-cash return also helps us understand how risky an investment is. If the return is low, it might mean the property has a lot of expenses or doesn't make enough money. This can help us make smarter decisions.
3: Comparing Different Properties: By looking at cash-on-cash return, we can compare different properties in Guelph. We can choose the ones that give us more money and avoid the ones that don't make as much.
4: Thinking About Loans: When we want to borrow money to buy a property, lenders look at cash-on-cash return to see if it's a good investment. If the return is high, it means it's less risky, and we might get better loan terms.
Factors That Affect Cash-on-Cash Return in Guelph:
Several factors can change the cash-on-cash return for properties in Guelph:
1: Renting Market: The rental market in Guelph, like how many people want to rent and how much they're willing to pay, affects how much money we can make from the property.
2: Costs of Running the Property: Expenses like property taxes, insurance, and repairs can change the amount of money we make. It's important to understand these costs when calculating the cash-on-cash return.
3: Loans and Financing: The terms of the loan we get, like the interest rate and how much we need to pay upfront, can change how much money we invest and, in turn, affect the cash-on-cash return.
4: Good Management: Taking care of the property and finding good tenants can help us make more money. It's important to hire someone who knows how to manage properties well.
Cash-on-cash return is an important concept for real estate investors in Guelph, Ontario. It helps us figure out if a property is making enough money and if it's a good investment. By considering this metric and understanding its factors, like rental market and expenses, we can make smarter decisions and have more successful real estate investments in Guelph.
Want to learn more? Reach out to our real estate investing expert
Joe MacDowell!
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