CoC Return: Annual Net Operating Income / Total Cash Investment
- Purchase price $: the amount you pay for the property.
- Down payment %: the amount of the down payment measured as a percentage of the purchase price. Multi-family investment mortgages typically require 25% down.
- Additional cash investment $: additional money out of your pocket at time of purchase. Think closing costs + pre-rental repairs or improvements.
- Gross monthly income $: total rent income plus any other income generated by the property per month. Other income might include money generated from laundry and other vending machines or renting some storage space.
- Vacancies allowance %: estimated percentage of the year that the property may be vacant. A typical estimate might be 4% (2 weeks).
- Annual Operating expenses % (total annual expenses ÷ gross annual income): annual expenses such as property taxes, insurance and maintenance. The below defaults use a value of 28%. Example: 7000 (taxes) + 3500 (insurance) + 2940 (maintenance) = 13,440. Gross monthly rent 4000 x 12 (months) = $48,000 (gross annual income). 13,440 ÷ 48,000 = 28%.
If you pay someone to manage the property, add that cost as an expense. Some formulas also factor in reserves for replacements (money set aside to replace short-lived items like appliances). Keep in mind, when comparing properties against one another, remember to include the same variables for each property.
- Debt service $: debt service is calculated for you. It's the annual principal and interest portion of your loan. Taxes and insurance are not included as debt service as they are factored in as operating expenses.