Jan 3, 2023
One of the upsides to real
estate investing vs. other investments, stocks for example, is that
with real estate we can know when we buy a property if it’s a good
investment or not. It all comes down to the numbers. While there
are a lot of metrics out there to compare investments there are a
few that are more important and one in particular that every
conservative investor should have in their tool
belt.
If I
had to choose just one metric, it would be the Cash-on-Cash (COC)
return. This tells us how much cash we are actually making at the
end of the day–which, to me as a conservative investor, is always
more important than what we could make. By investing for appreciation for
example.
In our current economic environment you can
pretty much kiss your appreciation returns goodbye since the market
is dropping. BUT we can still find properties that earn a good
return and to do that we will need to fully understand the COC
metric.
To take it one step further, as short-term
rental investors, we need to add in a few items to make sure that
we are accurately calculating our potential returns.
Let's break that all down this week to make
sure you are not getting into a deal that doesn’t make
sense.
- What is the cash on cash return?
- An easy example
- Historic averages
- Today’s averages
- Why the annualized COC return is important
- Why CAP rates are not as useful.
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