All Topics / Legal & Accounting / COCR 0.89%, can you explain in dollar terms?

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• mtime
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@mtime
Join Date: 2009
Post Count: 11

Hi

Squeezing the brain from right to left!
I have calculated the COCR figures and have come to 0.89%
How do I translate this into a dollar amount for every dollar of cash down?

cash down: \$90000
cash back:  \$809
cocr = 0.89% (calculated annually)

Financial intelligence……..its been a while.

any help appreciated

thanks

mtime
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@mtime
Join Date: 2009
Post Count: 11

Anyone?

Scott No Mates
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@scott-no-mates
Join Date: 2005
Post Count: 3,856

Divide by \$90k (as this is what you are putting into the investment).

mtime
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@mtime
Join Date: 2009
Post Count: 11

Hi Scott

I should have asked the question as follows:

We have a ppor that we want to turn into IP and lease.
We put \$90,000 into it at price of \$355,000.

I understand that COCR is as follows:
Cash back \$809 divided by cash down \$90,000 = .89%

So how do I translate .89% into a \$ amount back per \$ spent?
(as seen in Steve's 'From 0 to 260+ properties in 7 years' – pg248 – if you have it)

achih
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@achih
Join Date: 2008
Post Count: 2

For every \$1 cash you invest you will receive \$0.0089 cash yield in return (I think).

mtime
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@mtime
Join Date: 2009
Post Count: 11

Hmmmm… I'm not sure about that one. However, I am happy to be corrected with an explanation.

Terryw
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@terryw
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You would just times \$1 by the COC rate. \$1 x 0.89%

Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

mtime
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@mtime
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Thanks Terry

I can see that now. Its tiny but still positive!

craigsed
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@craigsed
Join Date: 2004
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Hi mtime,

I think the way to approach this is to evaluate how you are arriving at an annual return of just \$809. Is this correct? Is this a profit from sale or from rental return?

If this is the actual return then .89% is indeed the true return – and yes it is small because \$809 annually on a \$90k investment is crud!

If however your MONTHLY rental return is \$809 then you annual income is \$9708 and over a \$90k investment gives you an annual COCR of about 10%.

CS

mtime
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@mtime
Join Date: 2009
Post Count: 11

Hi Craig
Yes, not sufficient.  I think I need help with the sums.
I'm seeing if we can convert our current ppor into an investment.
However, I think it would be better to reno and sell to unlock the \$90,000.

The problem trying to calculate the cocr is with the deposit and closing costs. Because it was ppor we put the \$90000 into it, so I've used this amount in the following: (happy to be corrected)

Cash down:
deposit and closing costs = \$90,000

Cash back:
annual rent = \$18720
– loan repayments (\$24500 mortgage) = \$12740 (current interest rate 5.2%)
-management fees (7.7%) = \$1441
-rates, insurance etc = \$2500
total cash back = \$2039

Cocr
Cash back: \$2039
divided by cash down: \$90,000

I can see that \$90,000 down with a small return is not a smart investment choice.

craigsed
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@craigsed
Join Date: 2004
Post Count: 37

Hi mtime,

Lets look at a couple of different scenarios to see what good COCR can look like.

1. Say we buy a block of land and build a duplex on it. At the end of the project we sell the two homes. Lets say that all up purchase/development/holding costs come to \$600,000, but that you borrow most of this from the bank and you only have to put \$100,000 of your own money into the deal. Now lets say the net sale price of the two homes is \$800,000, meaning after you pay back the \$500k loan you are left with \$300,000.  So our COCR for this deal is 300,000/100,000 = 300% return!

2. Now for an annual return situation on a house being rented out. House purchased for \$400k, with 80% loan you end up contributing \$95,000. Rental income is \$800pw, or  \$41,000 per year, netting \$14,000 after all costs. in this case your ANNUAL COCR is about 14%.

Both these examples are what I would consider to be healthy returns.

So returning to your example above I think you need to decide what you are looking for:

If you are looking to perhaps spend some additional money to reno and then sell, then you would need to figure out how much you might end up with after the sale (and having repaid any loans) and dividing this by the total of \$90k plus whatever you have already invested into the property up to this point. There are marketing/sale costs, etc too – this is just for a rough estimate.

If you are planning on a \$90k reno and then renting it out I think you have already answered your own question. You are going to get a negligible annual COCR. And that is without even including whatever money you already have in the property.

CS.

mtime
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@mtime
Join Date: 2009
Post Count: 11

Hi Craig

This is clear.  Will re-evaluate needs.

Thanks

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