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Updated about 6 years ago on . Most recent reply

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David Jones
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What does cash on cash return mean and why is it so important?

David Jones
Posted

I know what the formula but why is it so important?

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Tom Shallcross
  • Rental Property Investor
  • Chicago
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Tom Shallcross
  • Rental Property Investor
  • Chicago
Replied

@David Jones - CoC is your ratio of annual net cashflow to your amount invested. It's significant for several reasons. People will throw around a lot of terms like " monthly net cashflow of $300/M, is this a good deal?" CoC helps make more sense of this as if you have $1,000 invested in the deal to earn this return, you are sitting much prettier than if you have $50k invested to make the same $3,600/year

I personally love the CoC metric as it's highly correlated to my velocity of acquisitions. If I'm leaving a lot of money tied-up in deals (lower CoC) it is harder for me to expand. Yes I do believe CF is king but being able to BRRRR the majority of my funds out of each deal after the rehab/refi is what allows me to continually recycle my initial investment and expand without running out of capital.

Lastly, this metric also allows you to evaluate different financing options and guide your decision on the best refi option for each individual deal.  

I've only scratched the surface here, but feel free to ping me if you want to chat on this.   

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