Best Real Estate Investment Metrics

The core panel

These are the metrics worth computing on every property, in this order.

• NOI — the property's operating earnings and the base for everything else.
• Cap rate — unleveraged yield, used to compare assets and to value NOI.
• Cash flow — dollars left after debt service; what actually reaches your account.
• DSCR — safety margin between NOI and mortgage payments.
• Cash-on-cash — annual cash return on the cash you invested.
• IRR — time-weighted total return across the hold and exit.

Supporting checks

Gross rent multiplier is a fast screen but ignores expenses entirely, so never make a decision on it. Operating expense ratio flags pro formas that are too good to be true. Price per unit and price per square foot are useful only against local comparables.

How each metric can mislead

Cap rate is only as honest as the NOI beneath it. Cash-on-cash can be inflated by omitting closing costs from cash invested. IRR is highly sensitive to the assumed exit price, which is the least knowable input in the model.

The defence is disclosure: write your assumptions down next to your outputs, and mark which are verified facts and which are estimates.

Frequently asked