What is CoC Return?

How to Calculate Cash on Cash Return (CoC%) for Real Estate Investments

One of the key metrics real estate investors use to evaluate the profitability of an investment is Cash on Cash Return (CoC%). It helps you understand the annual return on the actual cash you’ve invested in a property, giving you a clearer picture of its cash flow potential.

Here’s how to calculate it:

The Formula:

Cash on Cash Return=Annual Pre-Tax Cash FlowTotal Cash Invested×100\text{Cash on Cash Return} = \frac{\text{Annual Pre-Tax Cash Flow}}{\text{Total Cash Invested}} \times 100

Step-by-Step Guide:

1. Calculate Annual Pre-Tax Cash Flow:
   This is the money you make from the property each year after all expenses. Subtract your mortgage payment, property taxes, insurance, maintenance costs, and any other expenses from your rental income.

2. Determine Total Cash Invested:
   This includes your down payment, closing costs, and any other upfront costs you paid to acquire the property. It's the total amount of cash you've actually put into the deal.

3. Plug the Numbers Into the Formula:
   Divide your annual pre-tax cash flow by the total cash you’ve invested, then multiply by 100 to get a percentage.

Example:

• Annual Pre-Tax Cash Flow: $12,000

• Total Cash Invested: $100,000 (down payment + closing costs)

CoC% = 12,000 / 100,000 x 100 = 12%

So, in this example, the Cash on Cash Return is 12%, meaning you’re earning a 12% return on the cash you've invested in the property each year.

Why It Matters:

Cash on Cash Return gives you a quick snapshot of your investment's performance. It helps compare properties or assess whether a property is worth your investment based on the cash it generates relative to the money you've put in. Keep in mind, though, that this is just one metric to consider—long-term appreciation and other factors should also play a role in your decision.

In short, calculating CoC% is a straightforward but powerful way to measure the immediate return on your real estate investment!