Glossary
Cash on cash return (CoC)
Cash on cash return (CoC) is one year of cash flow divided by the cash you have in the deal. $3,000 a year on $30,000 invested is a 10% cash on cash return.
CoC answers a simple question: what is my cash earning? Unlike cap rate, it counts the mortgage, so it reflects the deal you actually have.
It is a year one snapshot. It does not count loan paydown, appreciation or the sale, so use it for comparing cash yields, not total returns.
How to calculate it
CoC = yearly cash flow / cash invested. Cash invested includes the down payment, closing costs, loan costs, rehab paid in cash and carry before the first rent check. For a BRRRR, use the cash left in after the refi.
- Monthly NOI ($15,840 / 12)
- $1,320.00
- Capex reserve (5% of $2,000 rent)
- minus $100.00
- Principal and interest ($150,000 at 7%, 30 years)
- minus $997.95
- Monthly cash flow
- $222.05
- Yearly cash flow
- $2,664.60
- Cash invested
- $30,000
Loan terms are illustrative and vary by lender.
Common mistakes
- Leaving closing costs or rehab out of cash invested. That inflates the return.
- Skipping the capex reserve in cash flow.
- Comparing year one CoC to a deal you plan to sell. For full hold returns, look at IRR.
Run The Deal's default scoring treats 8% as good and 5% as marginal for a buy and hold rental, and 12% and 6% for a BRRRR. Those are planning targets you can change. See it on your deal with the rental property calculator or the BRRRR calculator.
Questions
What is a good cash on cash return?
Targets vary by investor and market. Run The Deal's default scoring treats 8% as good for a buy and hold rental and 12% as good for a BRRRR.
Is cash on cash the same as ROI?
Not quite. CoC uses one year of cash flow. ROI usually measures total profit over the whole deal.
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