Cash-on-Cash (CoC) return measures the actual annual income generated relative to the amount of cash invested by the landlord, usually including down payments and renovation costs. Unlike cap rates, CoC return accounts for the specific financing terms of the loan, making it a more accurate reflection of an investor's personal bottom line.
How It Applies to Florida Landlords
For Florida landlords utilizing leverage, CoC return is critical for understanding the impact of mortgage rates and property taxes. Because Florida has varying tax millage rates and insurance premiums, two identical properties in different counties could have vastly different CoC returns. This metric helps landlords determine if using a loan increases their efficiency or if the cost of debt service is eroding their monthly cash flow.
Key Takeaways
- Calculated as Annual Pre-tax Cash Flow divided by Total Cash Invested.
- It accounts for mortgage interest and principal payments, unlike cap rate.
- It measures the liquidity and efficiency of your actual out-of-pocket capital.
- It is the most vital metric for investors relying on financing for their Florida portfolios.