Calculating CoC Post Income Tax

[Mike Weiner]

Hi All,

I am currently having a debate with my partner regarding cash on cash targets. Currently we are targeting 20% cash on cash returns after mortgage. Our previous experience has been with SFH and we find 15%-20% a reasonable target.

CoC = [NOI - Mortgage] / [Cash down + Cash for renovations]

As we have been looking to scale we started looking at MFH and small apartments. The comment was made by our realtor that MFH are a different animal because of the tax sheltering opportunities. Due to this comment a new metric was invented: CoC after 25% income tax.

[NOI - Mortgage + (Total expenses/4)] / [Cash down + Cash for renovations]

Total Expenses = Property taxes, maintenance, insurance, property management, landscaping, and utilities

In extreme cases this boost our CoC 13% which causes me to question the legitimacy of this formula. A quick search of BP shows no-one else considering this tax sheltering in CoC, whats the reasoning? Is there a more applicable formula to use?

Regards,

Mike in Michigan