Cash on Cash (CoC) and Internal Rate of Return (IRR) are two important metrics used in multifamily investing to evaluate the potential return on investment (ROI) of a property.

Cash on Cash, also known as the cash flow ratio, is a measure of the cash flow generated by a property relative to the initial cash invested. It is calculated by dividing the annual cash flow (rental income minus expenses) by the initial cash invested. A higher CoC percentage indicates a higher return on investment.

Internal Rate of Return (IRR) is a measure of the profitability of an investment over time. It is the discount rate that makes the net present value (NPV) of an investment equal to zero. IRR is expressed as a percentage and takes into account the time value of money, which is the idea that money received in the future is worth less than the same amount received today. A higher IRR indicates a more profitable investment.

While both metrics can help evaluate the potential ROI of a multifamily property, there are some key differences between them.

First, CoC only looks at the cash flow generated by a property in the short term, whereas IRR takes into account the cash flow generated over the entire investment period.

Second, CoC is a simple ratio that compares cash flow to initial investment, whereas IRR is a more complex calculation that takes into account the time value of money and the net present value of the investment.

Lastly, CoC does not take into account any capital appreciation, whereas IRR does account for the appreciation of the property value.

In conclusion, both Cash on Cash and IRR are important metrics used in multifamily investing and can provide valuable insights into the potential ROI of a property. However, they do have some key differences and should be used in combination to get a complete understanding of the potential return on investment of a multifamily property.