Cash-on-cash returns
What are they?
Cash-on-cash return (CoC) is an indicator that compares the cash flow generated by a real estate investment with the amount of capital invested. This indicator is used to evaluate the relative profitability of different real estate investments, allowing investors to see how much return they are getting in terms of cash for every unit of money invested.
In real estate, this calculation focuses on the annual income from the property, such as rent payments, relative to the initial capital that has been invested in the acquisition and commissioning of the property.
Key aspects to consider
Cash-on-cash return is a useful indicator for measuring the short-term cash flow efficiency of an investment. It is especially valuable for investors seeking regular passive income and wanting to understand how their investment generates money immediately. However, it does not account for other important factors such as capital appreciation or the time value of money.
This indicator can be limited if used in isolation, as it only reflects cash flows and not the total return on the investment. It is important to complement it with other calculations that consider asset appreciation and other long-term aspects to get a comprehensive view of the profitability of a real estate investment.