ROI vs. COC? Please review this blog post before I send it out...

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Hi All,

Any thought/comments/criticisms/concerns with this before I post it?

Thanks!

When comparing and analyzing properties, we prefer to use the "Cash-on-Cash" (COC) return rather than the Return on Investment (ROI). We do this for several very important reasons.

To start, we calculate ROI by combining:

  • Cash Flow
  • Mortgage Principal Paydown
  • Property Appreciation
  • Tax Benefits

... and dividing the total by the cash required to purchase the property.

The COC is simply the annual cash flow divided by the cash required to purchase the property.

We believe that the COC gives a better "apples to apples" comparison for cashflow investors because:

  • Cash flow for any property can easily be calculated using standard income and expense assumptions.
  • For cash purchases, there will be no mortgage principal paydown since no mortgage exists.
  • Appreciation for a property is an unknown and may only be realized when a property is refinanced or sold. We choose not to inflate a property's ROI by adding in anticipated or forecasted appreciation.
  • Tax benefits will vary greatly depending on an investor's individual circumstances.


In short, if you are looking to invest for cash flow, COC is the figure to know!

To start, we calculate ROI by combining:
  • Cash Flow
  • Mortgage Principal Paydown
  • Property Appreciation
  • Tax Benefits

In the commercial space that's often called "total return".

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