Monthly Cash Flow vs CoC ROI

[Eric Ching]

I'm analyzing a deal in Austin, TX that I would be buying all cash. I plan on holding long term and need some help. After putting the numbers in the calculator my monthly cash flow will be $700/mo. However the CoC ROI is 4%. I'm confused about this part. I thought if a property cash flows high the CoC ROI should also be high. Would this be a good deal? And if it came down to the two would you want Cash Flow or CoC ROI higher? Thanks!

[Mason Hickman]

@Eric Ching You can't really get an answer about if you want Cash flow or CoC higher because one is a percentage and the other is a (hopefully) positive number. Let's look at an example of why you can't necessarily say that if cash flow is good, your CoC return will be higher:

If you take two identical properties that are right next door to each other and you pay cash for them. House 1, you pay $200,000 for and House 2 you pay $250,000 for it. Let's assume they generate the same exact rent of $1,500 per month and after your expenses, each will generate $800 per month cash flow. Even though your monthly cash flow is identical for both properties ($800 per month), you paid an extra $50K for House 2 to generate the same cash flow. 

House 1 CoC = 4.8%

House 2 CoC = 3.84%

My suggestion would be to look at your CoC return when comparing different properties so you have a good measuring stick to judge properties with different prices.