Cash on Cash Calculation v. ROI is **CONFUSING!!**

[Selina Giarla]

I have spent hours looking online (including on here) at the CoC calculation as well as the ROI calc. Here is my understanding

1. Cash on Cash Return=  

Annual (before tax) Cash Flow / Total Investment

Question: Does the Annual (before tax) Cash Flow include: Real estate taxes, insurance, vacancy factor, capex contribution, annual leasing fees, R&M factor, and debt service? These are aside from the standard expenses such as mgmt fees, utilities, HOA, landscaping/snow.

Question: Does Total Investment include: Down payment, closing costs (including escrow funding?), and legal fees to close?

I can't imagine not doing a calculation that doesn't factor real estate taxes, or debt service (mortgage pmts) so if CoC isn't the correct calculation please let me know. My strategy is receive monthly income, and hold long term if that changes anything.

[Selina Giarla]

@Jonathan Bock - I have two goals: 1.) Have monthly profit (which I realize may be more than the annual cash flow because that factors some assumptions that may not happen (vacancy, leasing costs, as much R&M as budgeted) in the year.

2.) I also want to analyze deals apples to apples to choose one that makes the most sense with respect to my returns. I figured CoC is the best tool for that. If I have 3 deals, all with different debt costs, capital outlay, etc. I want to be able to determine which one has the best CoC. To me, it doesn't make sense to calculate a yield without debt service if you are using debt, because it's a real expense and it's something to compare to cap rates.