It measures the annual rate of return that an investor receives on the actual cash investment made in a property, expressed as a percentage.
What is Cash on Cash Return (CoC return)?
Cash on Cash Return (CoC return) is a financial metric used to evaluate the profitability of a real estate investment. It measures the annual rate of return that an investor receives on the actual cash investment made in a property, expressed as a percentage.
The calculation of CoC return is simple. It involves dividing the annual pre-tax cash flow generated by the property by the total cash investment made by the investor. The resulting percentage is the CoC return.
Formula: Cash on Cash Return = (Pre-Tax Cash Flow / Cash Investment) x 100%
For example, if an investor purchases a property for $500,000 and invests $100,000 of their own cash into the deal, and the property generates $20,000 of pre-tax cash flow per year, then the CoC return would be 20% ($20,000 / $100,000).
The CoC return is a valuable tool for real estate investors to compare the performance of different investment opportunities. A higher CoC return means a better return on investment and a more profitable investment opportunity.
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