10 Metrics Successful Real Estate Investors Should Know Inside And Out

Fund That Flip compiled a list of 10 metrics that are important for real estate investing, as well as information on how to calculate them and what they are used for, using research from investors, bankers, and financial news reports.

Cap rate

A property’s capitalization rate, or cap rate, is an estimate of the potential return on a real estate investment. While there are a number of ways to estimate the potential return on a real estate investment, most investors use the cap rate as their main metric for forecasting the return on investment, or ROI.

The loan-to-value ratio, or LTV, is a metric used by lenders and other financial institutions to determine the risk associated with issuing a mortgage loan.

Loan-to-value ratio

Net operating income

Similar to the cap rate, the net operating income, or NOI, is a formula used by many real estate investors to learn what the profitability could be for an investment. By calculating the NOI, an investor can easily determine both the revenue and profitability—minus the associated operating expenses.

It’s the amount of cash that is leftover from a completed transaction. Ideally, the net cash flow should be a positive number each month for investments.

Net cash flow

Gross rent multiplier

The gross rent multiplier, or GRM, is a formula used to measure a commercial real estate investment’s performance. This metric is typically used to compare different investment opportunities within a market to determine the best opportunity for the investor.

The debt service coverage ratio is an important metric in real estate investing because it indicates the amount of net cash flow that’s available to pay the mortgage on an investment property.

Debt service coverage ratio

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