In the world of investing, different measures provide varying perspectives on the performance of your investments. One such key measure, especially prominent in real estate investing, is Cash on Cash Return, or CoC.

What is Cash on Cash Return (CoC)?

Cash on Cash Return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property. In simpler terms, it tells you how much cash flow (income after expenses) an investment is generating as a percentage of the initial investment, providing an indication of the investment's immediate yield.

How is CoC Calculated?

The formula for Cash on Cash Return is:

CoC = (Annual Pre-Tax Cash Flow / Total Cash Invested) * 100%

For instance, if you bought a property for $100,000 and made a down payment of $20,000 with a rental income of $5,000 per year after all expenses, your CoC would be:

CoC = ($5,000 / $20,000) * 100% = 25%

This means that the cash return on your actual cash invested (your down payment) is 25%.

Why is CoC Important?

CoC is particularly valuable when dealing with investments that require an upfront cash investment, like real estate. It gives investors insight into the profitability of their investments in relation to the amount of cash invested. However, like any financial metric, it should not be used in isolation. It is important to consider other factors such as appreciation, tax implications, and overall investment strategy.

Here at Vyzer, we strive to equip you with the insights and tools to efficiently manage and grow your wealth. Our platform provides a holistic view of your investments, helping you better understand and calculate crucial metrics like CoC, ensuring your financial journey is navigated with clarity and confidence.