In my latest article for BiggerPockets, I go in depth on the numbers side of the business, discussing how and why various calculations are important, including the following:
- Cap Rate
- Cash on Cash Return
- Rent to Cost/Gross Yield
- Gross Rent Multiplier
- Return on Investment (and Annual Return on Investment)
- Internal Rate of Return
In hindsight, I probably should have thrown Debt Coverage Ratio in there (Net Operating Income/Debt Service, determines how much breathing room you have with a loan, banks are really keen on this and usually want 1.2 or above.)
I spend a lot of time going into IRR (Internal Rate of Return), which is the most complicated of the above calculations, but also tells you the most complete story about how much you are actually earning. For an in depth discussion on the subject, check the article out!
"Every day is a new life to the wise man."
The Righteous Mind
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Consulting by RPM