Jun 22, 2023 5 Min read
When it comes to investing in commercial real estate, understanding key financial metrics is essential. One such metric that plays a vital role in evaluating the profitability of an investment property is the cash on cash return. In this article, we will delve into what cash on cash return is and why it holds great importance for commercial real estate investors.
Cash on cash return, often abbreviated as CoC return, is a financial indicator that measures the annual cash flow generated by an investment property as a percentage of the total cash invested. It provides investors with a clear picture of the return they can expect on their initial cash investment.
To calculate cash on cash return, the following formula is used:
Cash on Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) * 100
The annual pre-tax cash flow refers to the net operating income (NOI) of the property after deducting operating expenses but before considering taxes and financing costs. The total cash invested includes the down payment, closing costs, and any renovation expenses.
Cash on cash return is a crucial metric for commercial real estate investors. It provides valuable insights into the profitability, cash flow potential, and risk associated with an investment property. By understanding and calculating CoC return, investors can make informed decisions, allocate their resources effectively, and evaluate the performance of their commercial real estate investments. When you are ready to put your investing plans in motion, contact Terrydale Capital for the number one partner for ensuring your success.
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