Cash On Cash Return Calculator Uk

Cash on Cash Return Formula:

\[ COC = \frac{\text{Net Cash Flow}}{\text{Equity}} \times 100 \]

Cash on Cash Return (COC):

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1. What is Cash on Cash Return?

Cash on Cash Return (COC) is a financial metric used in real estate investing to measure the return on actual cash invested in a property. It calculates the ratio of annual pre-tax cash flow to the total amount of cash invested, expressed as a percentage.

2. How Does the Calculator Work?

The calculator uses the Cash on Cash Return formula:

\[ COC = \frac{\text{Net Cash Flow}}{\text{Equity}} \times 100 \]

Where:

\( Net Cash Flow \) — Annual pre-tax cash flow from the investment (£)
\( Equity \) — Total cash invested in the property (£)

Explanation: This metric helps investors evaluate the profitability of an investment property based on the actual cash invested rather than the total property value.

3. Importance of Cash on Cash Return

Details: COC is particularly important for real estate investors using leverage (mortgages) as it focuses on the return on their actual cash investment. It helps compare different investment opportunities and assess whether a property meets the investor's return requirements.

4. Using the Calculator

Tips: Enter the annual net cash flow (rental income minus operating expenses and mortgage payments) and the total equity (down payment plus any additional cash investments). Both values must be in pounds sterling and greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good cash on cash return in the UK?
A: A good COC return varies by market, but generally 8-12% is considered good for UK rental properties, though this can vary based on location and property type.

Q2: How does cash on cash return differ from ROI?
A: While ROI considers total return on total investment, COC focuses specifically on the return on the actual cash invested, making it more relevant for leveraged investments.

Q3: Does cash on cash return include property appreciation?
A: No, COC only measures the annual cash return from the property and does not account for potential capital appreciation or depreciation.

Q4: Should I use pre-tax or after-tax cash flow?
A: COC is typically calculated using pre-tax cash flow to maintain consistency and comparability between different investments.

Q5: How often should I calculate cash on cash return?
A: It's best calculated annually to track investment performance, but can also be estimated before purchase to evaluate potential investments.