How do YOU calculate COC?
The calculation for CAP rate is clearly defined so everyone should be calculating it the same way. There are obvious benefits to having a uniform calculation. On the other hand, Cash on Cash Return seems to be calculated a variety of ways. I think most people know to include all your expenses in the numerator but it's the denominator that doesn't seem to be very consistent. What do you include in the denominator? I'm sure everyone includes the down payment (assuming its financed) and closing costs but do you typically include cash reserves? I believe cash reserves should be included since this is money you typically can't touch for other purposes. You didn't technically pay this amount to anyone but it is part of the "investment" you need to be a conservative investor. I personally hold about $5K per property in reserves. When I remove this from the denominator, my COC increases by 2%-3% which is quit significant! Are you calculating COC the same way?