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Updated over 5 years ago on . Most recent reply

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Jónas Tryggvi Stefánsson
  • Reykjavík, Iceland
13
Votes |
49
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CoCROI based on free or total cashflow?

Jónas Tryggvi Stefánsson
  • Reykjavík, Iceland
Posted

When people (or you!) calculate the Cash on Cash Return On Investment (CoCROI) to  compare the profitability of a real estate investment and compare that to other investment options, should it be based on the free cashflow (income - expenses, not including mortgage payments) or the total cashflow (income - expenses, including mortgage payments)?

I thought that when referring to CoCROI one was not supposed to include the mortgage payment but I've seen people such as Brandon do it when comparing an investment to the stock market in one of his YouTube videos.

Thanks! 

Most Popular Reply

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Joe Villeneuve
#5 All Forums Contributor
  • Plymouth, MI
19,435
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Joe Villeneuve
#5 All Forums Contributor
  • Plymouth, MI
Replied

CoCR includes the mortgage payment.

You're confusing CoCR with the CAP rate which does NOT include the mortgage payment...and is only used for commercial properties.

Keep in mind that both CoCR and CAP Rate are only applied the first year of the corresponding investments.

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13,399
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19,435
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Joe Villeneuve
#5 All Forums Contributor
  • Plymouth, MI
19,435
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13,399
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Joe Villeneuve
#5 All Forums Contributor
  • Plymouth, MI
Replied

CoCR includes the mortgage payment.

You're confusing CoCR with the CAP rate which does NOT include the mortgage payment...and is only used for commercial properties.

Keep in mind that both CoCR and CAP Rate are only applied the first year of the corresponding investments.

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48
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28
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Brady Morgan
  • WY
28
Votes |
48
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Replied

CoC return is after all expenses and debt service.

NOI is the calculation before subtracting debt service.

NOI - Debt Service = Cash on Cash return.

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User Stats

49
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13
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Jónas Tryggvi Stefánsson
  • Reykjavík, Iceland
13
Votes |
49
Posts
Jónas Tryggvi Stefánsson
  • Reykjavík, Iceland
Replied

Thanks for clarifying guys. Much appreciated.

User Stats

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59
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Sheldon Zimmerman
  • Real Estate Agent
  • Pennsylvania
59
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63
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Sheldon Zimmerman
  • Real Estate Agent
  • Pennsylvania
Replied

I think this really depends on what you are trying to figure out. If you want to know how much cash on cash you will get at the end of the year. I think it is very important to add the mortgage in the numbers. Because that will give you a true evaluation of how much the home will cost you. But if you are buying the property with all cash then you don't need a mortgage number in it. Hopefully, that helps.  

  • Sheldon Zimmerman

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Jim Pellerin
  • Real Estate Consultant
  • USA
750
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1,023
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Jim Pellerin
  • Real Estate Consultant
  • USA
Replied

Cash on cash is how much you are going to put in your pocket after you have paid everything. But it's not a good caparison for other types of investments because it doesn't take into account appreciation, forced equity and principal pay down.