Metrics That Matter!

📊 Core Metrics for Property Investment Success

Gross Rental Yield

• Formula: (Annual Rent ÷ Property Value) × 100

• Indicates the income potential of a property before expenses. A higher yield often means better cash flow, but may come with higher risk.

Net Rental Yield

• Formula: (Annual Rent – Expenses) ÷ Property Value × 100

• More accurate than gross yield as it accounts for costs like maintenance, insurance, and property management.

Capitalization Rate (Cap Rate)

• Formula: Net Operating Income ÷ Property Value

• Measures the return on investment based on income alone, excluding financing. Useful for comparing properties across markets.

Cash Flow

• Formula: Rental Income – Operating Expenses – Mortgage Payments

• Positive cash flow means the property generates profit monthly. Negative cash flow signals a loss and potential financial strain.

Return on Investment (ROI)

• Formula: (Net Profit ÷ Total Investment Cost) × 100

• Evaluates overall profitability, including appreciation and rental income. Crucial for long-term planning.

Loan-to-Value Ratio (LTV)

• Formula: Mortgage Amount ÷ Property Value

• Indicates leverage and risk. A lower LTV means less debt and more equity, which

• lenders prefer.

Occupancy Rate

• Formula: (Occupied Units ÷ Total Units) × 100

• High occupancy means stable income. Low rates may signal poor management or market issues.

Operating Expense Ratio

• Formula: Operating Expenses ÷ Gross Income

• Helps track efficiency. A high ratio may indicate poor cost control or low income.

Break-Even Ratio

• Formula: (Operating Expenses + Debt Service) ÷ Gross Income

• Shows how much income is needed to cover costs. A ratio above 85% may be risky.

Internal Rate of Return (IRR)

A more advanced metric that calculates the total expected return over time, factoring in cash flow and appreciation. Ideal for comparing long-term investments.