Investment Property – What is Cash-on-Cash return
The right evaluation is critical in buying your next investment property. There are many different formulas and calculations that you can use to evaluate potential investment properties. Today we look at Cash-on-Cash return (COC).
Cash-on-Cash return calculates what rate of return you receive on the cash that you put into the investment. When purchasing, the cash is the downpayment and expected renovation costs needed. Specifically, net cashflow (Net Operating Income minus financing costs) divided by the cash (downpayment + renovation costs).
We want to compare this resulting percentage to other investment opportunities in the market. For example, if a property we are looking at has a COC return of 4% and the current mutual fund investment is 7% return, then we would not want to purchase this property. If the COC return was instead say 12%, then this would be a great investment for our cash.
Cash should have a higher rate of return than the market.
Contact Us
For more information on this calculation and analyzing investment properties, contact your local Ajax Mortgage Broker, Sean Stewart at 905-427-9596 or sean@seanastewart.com
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