Auditing Real Estate Profitability
Unlike public stocks where profit is simple to measure, real estate profitability depends on cash flow, loan amortization, property appreciation, and tax write-offs. To audit rental deals successfully, you must master the top indicators.
Here are the top 5 real estate ROI metrics compared:
- 1. Capitalization Rate (Cap Rate): Measures a property's unleveraged return rate (Net Operating Income / Purchase Price).
- 2. Cash-on-Cash Return: Measures the cash flow return relative to the actual cash you invested upfront (Annual Cash Flow / Total Cash Invested).
- 3. Internal Rate of Return (IRR): Measures the total compound annual return rate, factoring in future cash flow, loan paydown, and sales value appreciation.
- 4. Debt Service Coverage Ratio (DSCR): Evaluates if a rental property generates enough cash flow to cover its monthly mortgage payments safely.
- 5. Gross Rent Multiplier (GRM): A quick screening metric to compare property purchase prices to gross rental income (Purchase Price / Annual Gross Rent).
Try the Live Top 5 Real Estate ROI Indicators
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