Note: The Flip Analyzer tool calculates the COCR instantly calculates the COCR for you, but if you want to understand the underlying formulas and calculations please read this article!
What is COCR?
The COCR Return is a ratio used to measure your return on the money you have invested in the deal. COCR (Cash-on-Cash Return) is calculated by dividing your Profit by the Cash Invested into the deal.
COCR = Profit / Cash Invested in the Deal
Calculating Your Cash Invested in the Deal
We previously learned how to calculate your profit, but in order to calculate your COCR you need to also know the amount of Cash Invested into the deal.
To calculate the Cash Invested, you need to know how much Upfront Project Capital is required for the project and then subtract the amount of Funding you are receiving from your lenders.
Cash Invested = Upfront Project Costs - Funding Amount
Wait A Second, What Are Upfront Project Costs?
Upfront Project Costs
Upfront Project Costs are costs incurred when you purchase the property and costs incurred during the rehab. Upfront costs include your Purchase Amount and Buying Costs when you purchase the property, and the on-going costs such as your Repair Costs, Holding Costs, & Financing Costs that you incur during the rehab.
Upfront Project Costs = Purchase Price + Repair Costs + Buying Costs + Holding Costs + Financing Costs
**Note: Upfront Project Costs calculation doesn't include Selling Costs because Selling Costs are generally paid for out of the proceeds of the sale when you sell the property.
Once you have calculated your Upfront Project Costs you deduct your outside Funding Amount to calculate the amount of cash you need to invest in the deal.
Upfront Project Cost Example
A flipper purchases a property for $95,000 that needs $65,000 in repairs, 1% Buying Costs (of Purchase), $750 per Month in Holding Costs (for 5 months), & 8% in Selling Costs (of the ARV). The investor is using a Hard Money Lender that is providing a loan for 70% of the ARV ($140,000 Loan Amount), and charges 12% Interest for 6 months.
Resale Value = $210,000
Purchase Price = $95,000
Repair Costs = $65,000
Buying Costs = $950
Holding Costs ($750 / month * 5 months) = $3,750
Selling Costs (8% of Sales Price) = $16,000
Financing Costs ((12%*$140,000)/12)*6 Months = $8,400
Answer
Upfront Project Costs = Purchase Price + Repair Costs + Buying Costs + Holding Costs + Financing Costs
Upfront Project Costs = $95,000 + $65,000 + $950 + $3,750 + $8,400
Upfront Project Costs = $173,100
In this example, there is $180,700 in Upfront Project Costs.
Okay, now that we have calculated our Upfront Project Costs we can calculate our Cash Invested in the Deal. Let's use the Example above to calculate our Cash Invested in the Deal.
Cash Invested Example
Our flipper from the previous example has $173,100 in Upfront Project Costs and is using a Hard Money Lender that is providing a loan for 70% of the ARV ($140,000 Loan Amount).
How much cash will the flipper need for this project?
Upfront Project Costs = $173,100
Funding Amount = $140,000
Answer
Cash Invested = Upfront Project Costs - Funding Amount
Cash Invested = $173,100 - $140,000
Cash Invested = $33,100
In this example, the flipper will need $33,100 of their own cash.
Finally, let's calculate the COCR!
Okay, now that we have all of the variables we need, we can finally calculate the COCR for the property.
COCR Example
Our flipper from the previous examples has a Calculated Profit of $20,900 with and needs $33,100 in Cash.
What is the flipper's COCR?
Calculated Profit = $20,900
Cash Invested = $33,100
Answer
COCR = Profit / Cash Invested
COCR = $20,900 / $33,100
COCR = 63.1%