The formula to calculate the Cash-on-Cash Return (COCR) is:
\[ COCR = \frac{CF}{I} \times 100 \]
Where:
Cash-on-Cash (CoC) is a financial metric widely used in real estate investing to evaluate the profitability and return on investment (ROI) of a property. It provides a simple and effective way to assess the cash flow generated by an investment property relative to the initial cash invested. CoC is calculated by dividing the annual pre-tax cash flow from the property by the total cash investment and multiplying by 100 to express it as a percentage. This metric allows investors to determine how much cash they are earning on the money they have put into the property.
Let's assume the following values:
Step 1: Divide the annual pre-tax cash flow by the total cash invested:
\[ \frac{12000}{100000} = 0.12 \]
Step 2: Multiply by 100 to express as a percentage:
\[ 0.12 \times 100 = 12\% \]
Therefore, the Cash-on-Cash Return is 12%.