Cash on Cash Return Calculation for Landlords

Cash on Cash Return = Annual Pre-Tax Cash Flow divided by the Total Cash Invested

Example: You purchase a $200K rental property for 30% down plus $4K in closing costs. You invest $10K cash in improvements. After expenses, your first year’s pre-tax cash flow is $12K. The Cash on Cash Return would be $12,000 / $74,000 = 16%.

How do you use it?

Cash on Cash return is one of the simplest and most versatile ways to evaluate real estate properties. You can quickly determine if an investment is performing favorably, as well as trying to detect if a property for sale is underpriced. (See also our cap rate blog post).

Calculating Pre-Tax Cash Flow

  1. Sum the annual income including rent, fees, laundry, parking, everything.
  2. Leave an allowance for vacancies.
  3. Subtract expected cash outlays, such as expenses (repairs, interest expense) and the mortgage payment.

If cash is extracted from a property, through a refinancing for instance, don’t include that cash in the annual cash flow, because that return of capital is not income and it would misleadingly inflate your rate of return.

Carefully Consider the Following

Cash on cash return is based on before-tax cash flow, so it does not consider the investor’s tax circumstances (although it could become more favorable after the tax saving depreciation expense is considered).

Cash on cash return also ignores property value appreciation.

It ignores what investments your cash flow could be reinvested in, thus neglecting the effects of compound interest.

How to calculate Cash on Cash Return in QuickBooks

quickbooks for landlords instructional training - cash on cash returnIf you are doing a forward looking calculation, you will not have income information about that transaction in QuickBooks, so you can do it all on paper or in Excel. (Perhaps basing your vacancies and expenses on actual comparable numbers, though.) If you have entered the purchase price already, you can calculate this with a few clicks and a simple calculator. To learn more (quickly), invest in our QuickBooks training for landlords and property managers today.

See pricing information for QuickBooks training for Real EstateEverything is 100% guaranteed and you can read other investors testimonials ♥ for more information.

If you enjoyed this, also read about the Cap Rate explained for Landlords and Real Estate Investors or the rest of our landlording blog.

How to Import the Sample and Template Company File (QuickBooks for Mac)

Previously, we explained for Windows users how to import the training files you purchased. Now, we break it down for landlords using the Mac version of QuickBooks. Use the online edition? Read those instructions.

Step 1. Download the data files from the members only area.
mac download landlord accounting files

Step 2. Open QuickBooks for Mac. Choose to restore a backup file.
mac step 1 - restore quickbooks file for landlords

Step 3. Choose where to restore the file. You can browse to a different location so that it saves the file in a nicely organized place for you.
mac step 2 - restore quickbooks file for landlords

Step 4. Confirm that you are going to restore a backup file.
mac step 3 - restore quickbooks file for landlords
It will confirm that you restored the file, and offer to show it in Finder.
mac step 4 - restore quickbooks file for landlords

Great, you’re done. Now the Company file opens up, and you can begin exploring in QuickBooks. We hope you find this helpful for managing your rentals in QuickBooks.
mac opened company file landlord accounting

If you want to understand more, feel free to contact us. Impatient? You can buy our full training with hundreds of pictures explaining everything.

How To Import the Sample and Template Company File (QuickBooks for Windows)

Great, you just invested in learning to use QuickBooks for landlords. The following instructions show exactly how to import the company file for QuickBooks 2012 on Windows. The instructions are essentially the same for all other year’s versions on Windows. Mac user? Read the Mac instructions for landlords. Online user? Read those instructions.

Step 1. First, make sure QuickBooks is installed. Start the program. Close any existing company files you have. File > Close Company File…

Step 2. Download the files in our members only section with the login you received upon purchase.
members only area
Take note where you save these files.

Step 3. Restore these backups. Click the button or use the File menu to open the file.
step 0a - open or restore quickbooks for landlords or:
step 0b - open or restore quickbooks for landlords

Step 4. Choose to restore a backup copy.
step 1 - open or restore quickbooks for landlords

Step 5. It is a local backup:
step 2 - open or restore quickbooks for landlords

Step 6. Browse to where you downloaded the file in step 2, above. Restore one of the files:
step 3 - open or restore quickbooks for landlords

Step 7. You’ll see this screen, click Next.
step 4 - open or restore quickbooks for landlords

Step 8. Now, choose where to restore thihs company file. If restoring the “template file” this could be the demo file we suggest everyone creates, or your actual file. If restoring the “sample company” file, generally it is best to leave the name as the default, so not to confuse it with your company files.
step 5 - open or restore quickbooks for landlords

That’s it. You should then be able to have everything imported into QuickBooks. Now you can repeat this for the template file.

Note, it is possible you see a message about upgrading the company file, if you are restoring a backup from a previous year’s version of QuickBooks. This is the screen you will see, but don’t worry about it. Go through the prompts presented, and Update Now.
step 6 - open or restore quickbooks for landlords

If you want to understand more, feel free to contact us. Impatient? You can buy our full training with hundreds of pictures explaining everything.

Entering Landlords’ Historical Transactions in QuickBooks

If you are starting a new QuickBooks company file for an existing company, you probably want to enter all those old transactions from the company into QuickBooks so that you can track current performance versus the past. For many landlords’ businesses, this is the right approach, and we will present two methods to quickly enter these historical transactions.

But for other businesses (especially the very small) it may make sense to cut over to use QuickBooks and leave historical reporting in your old system (Quicken, Excel, etc). If you create summary reports and some spreadsheets you can get a lot of the benefit of comparison, but less effort in migrating the data.

Forms method to ender historical transactions in QuickBooks

First, you can re-enter every transaction using the forms and windows you would normally. (Create invoices, receive payments, etc.) This is a great way to learn how to enter new transactions into QB’s. We recommend it for everyone to try, even if only to scrap that company file, as you learn much about how to do property management in QuickBooks by entering actual transactions.

If you do this, the order you enter the transactions is important, do it in the following order.

Enter Accounts Receivable in this order:

  1. Invoices
  2. Statement Charges
  3. Cash Sales
  4. Returns
  5. Customer Payments
  6. Deposits of customer payments sales tax payments

Enter Accounts Payable in this order:

  1. Bills
  2. Credits from vendors
  3. Bill Payments

Enter historical payroll txns.

Enter bank and other txns in the following order:

  1. Checks (do not duplicate bill payments)
  2. Deposits (do not duplicate customer deposits) bank fees and transfers
  3. Credit card transactions

Reconcile each bank account for each month as you go. Getting each month perfect will save a lot of time versus having to reconcile many months at once.

Summary journal entry method (“monthly rollup transactions”) to enter historical transactions in QuickBooks

This method is more useful for quickly entering your transactions, but only gives transaction data on a monthly rollup level.

Enter all historical transactions by creating a summary journal entry for each month between the start date and current date. Each entry will have the net impact of the month: rent receipts, maintenance (per property/class), capital investments per property’s asset account, owner draws, etc. You can enter in on the first of the month, for all transactions that happened each month.

Remember, even though this is not entirely accurate, it gives you a granularity that enables year over year monthly comparisons. For some people this is helpful enough, and potentially faster to calculate these net transactions from their old system than enter everything individually.

Reports to verify correct entry of old transactions into QuickBooks.

There are several reports you can run after migrating the data to ensure your new company file has the correct information.

  1. Run a Balance Sheet report as of the start date to verify beginning account balances.
  2. Generate a Profit and Loss report for periods since start date to verify historical transactions.
  3. Create an Open Invoices report and verify accounts receivable as of the start date.
  4. Use the Unpaid Bills report to verify accounts payable details as of the start date.
  5. Verify inventory by running inventory valuation summary report (probably not applicable for rental property companies).
  6. Run the Payroll Liabilities report to verify payroll liabilities detail as of the start date.
  7. Use the Payroll Summary report to check year-to-date payroll transactions.

We hope this helps, remember at Landlord Accounting you can learn more about tracking rental properties in QuickBooks and invest in our training.

See pricing information for QuickBooks training for Real Estate

Import Rental Property Chart of Accounts IIF

If you’ve purchased our training, you can take a look at (1) the complete company file with a year of sample transactions (buying, selling, rehabbing, repairing, etc) as well as (2) the empty template file.

But what if you already use QuickBooks and you just want to compare your chart of accounts with our chart of accounts? Simple, contact us and get the IIF file for the chart of accounts.

You can open up IIF files in Excel. Here’s what part of our chart of accounts IIF file looks like.

chart-of-accounts-rental-property-quickbooks-landlords

If you already have a company file, you probably just want to open up this and scan through the listing of accounts we use, and compare it with what you may want to use. You can tell the type of each account with column E. Real Estate Assets is a Fixed Asset account and Earnest Money Paid is an Other Current Asset.

If you see accounts you want in your existing company file (and read along in our PDF ebook to better understand about every account), you can enter them yourself in QB’s, or edit the IIF file and then import it in QuickBooks.

We hope this helps. For more information you can read more in our Landlord Accounting blog.