Investing in real estate requires careful evaluation to ensure a property aligns with your financial goals. Key metrics help determine whether a property is worth the investment. Cash flow, which subtracts expenses from income, provides insight into profitability and guides decisions about rental pricing or improvements. Net Operating Income (NOI) measures income before loans and taxes, clearly showing a property’s financial performance. To assess potential growth, the Internal Rate of Return (IRR) evaluates the expected rate of return over time, considering compound interest.
The Capitalization Rate (Cap Rate) estimates profitability by comparing NOI to the property’s market value, while the Loan-to-Value Ratio (LTV) calculates how much of the property’s value is financed, helping gauge equity. The Debt Service Coverage Ratio (DSCR) evaluates whether income can cover debt payments, a crucial factor in securing financing.
Finally, Cash-on-Cash Return analyzes the actual return on cash invested, accounting for all expenses and mortgage payments. By balancing these metrics, investors can identify opportunities with strong earning potential while mitigating risks, paving the way for long-term success in real estate.
source: https://highreturnrealestate.com/the-metrics-that-matter-most-in-real-estate-investing/
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