Metrics Quick Reference
All 10 essential real estate investment formulas, target ranges, and benchmarks in one comprehensive reference guide.
Investment Formulas
📊 Complete Metrics Overview
| Metric | Formula | Target Range | Use Case | Red Flag |
|---|---|---|---|---|
| Cash-on-Cash Return | Annual Cash Flow ÷ Total Cash Invested × 100 | 8-12% | Cash flow efficiency | <6% |
| Cap Rate | Net Operating Income ÷ Property Value × 100 | 6-10% | Property valuation | <5% |
| IRR | Discount rate where NPV = 0 | 15-25% | Time-value returns | <12% |
| Monthly Cash Flow | Gross Income - Operating Expenses - Debt Service | $200+/unit | Monthly income | Negative |
| DSCR | Net Operating Income ÷ Annual Debt Service | 1.25+ | Loan qualification | <1.20 |
| GRM | Purchase Price ÷ Annual Gross Rent | 8-12 | Quick screening | >15 |
| Price-to-Rent Ratio | Property Price ÷ Monthly Rent | 100-200 | Market valuation | >250 |
| LTV | Loan Amount ÷ Property Value × 100 | 75-80% | Financing strategy | >85% |
| ROI | (Total Returns - Total Investment) ÷ Investment | 20%+ | Total performance | <10% |
| Break-Even Ratio | (Operating Expenses + Debt Service) ÷ Gross Income | <85% | Risk assessment | >90% |
🎯 Primary Deal Analysis Metrics
Cash-on-Cash Return
Where:
• Annual Cash Flow = Gross Income - Operating Expenses - Debt Service
• Total Cash Invested = Down Payment + Closing Costs + Initial Repairs + Reserves
Example: $6,000 annual cash flow ÷ $50,000 invested = 12%
Capitalization Rate (Cap Rate)
Where:
• NOI = Gross Income - Operating Expenses (excluding debt service)
• Property Value = Purchase price or current market value
Example: $18,000 NOI ÷ $300,000 value = 6.0%
Cash Flow
Total Monthly Expenses include:
• Property taxes, insurance, property management
• Maintenance, vacancy allowance, CapEx reserves
• Mortgage payment (PITI)
Target: $200+ per unit minimum
📐 Secondary Analysis Metrics
Debt Service Coverage Ratio (DSCR)
Purpose: Measures ability to service debt
• Minimum 1.25 for investment properties
• Higher DSCR = Lower lending risk
Example: $18,000 NOI ÷ $14,400 debt service = 1.25
Gross Rent Multiplier (GRM)
Purpose: Quick deal screening tool
• Lower GRM = Better potential value
• Compare to local market averages
Example: $300,000 price ÷ $30,000 rent = 10 GRM
Break-Even Ratio
Purpose: Measures vulnerability to vacancy
• Lower ratio = More safety margin
• Target below 85% for safety
Example: $25,200 total expenses ÷ $30,000 income = 84%
🔬 Advanced Analysis Metrics
Internal Rate of Return (IRR)
Complex calculation requiring cash flow projections
Considers: Time value of money, all cash flows, exit value
Target: 15-25% for rental properties
Use: Comparing investments with different time horizons
Return on Investment (ROI)
ROI = (Total Return - Total Investment) ÷ Total Investment
Total Return includes: Cash flow + appreciation + tax benefits + loan paydown
Target: 20%+ annually
Use: Overall investment performance measurement
Loan-to-Value Ratio (LTV)
LTV = (Loan Amount ÷ Property Value) × 100
Purpose: Risk and financing strategy
Typical: 75-80% for investment properties
Impact: Higher LTV = Higher leverage and risk
🏘️ Market-Specific Benchmarks
A-Class Markets
High-end, stable areas
Cap Rate: 4-6%
CoC Return: 2-5%
Cash Flow: $100-300/unit
GRM: 12-20
Strategy: Appreciation focus
B-Class Markets
Middle-class, growing areas
Cap Rate: 5-7%
CoC Return: 6-10%
Cash Flow: $200-400/unit
GRM: 10-15
Strategy: Balanced approach
C-Class Markets
Working-class areas
Cap Rate: 7-10%
CoC Return: 10-15%
Cash Flow: $300-500/unit
GRM: 8-12
Strategy: Cash flow focus
D-Class Markets
Lower-income areas
Cap Rate: 10%+
CoC Return: 15%+
Cash Flow: $400+/unit
GRM: 6-10
Strategy: High yield, high risk
🚨 Critical Red Flags
❌ Deal Killers
- • Cash-on-Cash Return below 6%
- • Cap Rate significantly above/below market average
- • Negative cash flow projections
- • DSCR below 1.20
- • GRM above local market average by 20%+
⚠️ Warning Signs
- • Break-Even Ratio above 85%
- • ROI projections based on unrealistic appreciation
- • Analysis excluding major expense categories
- • Projections using below-market rent assumptions
- • Ignoring capital expenditure reserves
🏘️ Market Adjustment Factors
A-Class Markets
Lower yields, higher appreciation potential
B-Class Markets
Balanced yields and appreciation
C-Class Markets
Higher yields, higher management intensity
D-Class Markets
Highest yields, highest risk
📅 Seasonal Considerations
Q1 (Jan-Mar)
Slower rental market, good buying opportunities
Q2 (Apr-Jun)
Increasing rental demand, stable pricing
Q3 (Jul-Sep)
Peak rental season, higher rents possible
Q4 (Oct-Dec)
Motivated sellers, year-end tax considerations
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