12 Real Estate Investment Calculations Every Investor Should Know
The math behind
real estate investment calculations is really pretty simple. But sometimes the acronyms and jargon can get in the way.
Don’t worry, we’ll cut through all the clutter and simplify all the numbers you’ll need to know.
Net Operating Income (NOI)
NOI take into account your gross income, vacancy loss, and operating expenses such as maintenance, repairs, taxes, insurance, and property management.
Capitalization Rate (Cap Rate)
Cap rates are mostly used in the commercial real estate world, and cap rate data is collected for various product types (office, multifamily, industrial, etc.).
Rent to Cost Ratio
This metrics gives you the monthly rent as a percentage of total property cost (purchase price plus any repairs needed to get it rent-ready).
Gross Rental Multiplier (GRM)
The GRM is the total property cost (purchase price plus repairs needed) divided by the expected gross annual rents.
Debt Service Coverage Ratio (DSCR)
The Debt Service Coverage Ratio (DSCR), is metric many lenders use to determine whether a property has enough income to cover the loan.
The Break-Even Ratio is another way to look at how a property is performing in relation to the debt payments.
Cash on Cash Return
The Cash on Cash Return is another metric I watch closely for my own rental properties. It gives you your annual cash return as a percentage of your total cash invested.
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