top of page

Key Terms to Know

1

ROI

  • Definition: ROI measures the profitability of an investment.

  • Formula: ROI = (Net Profit / Cost of Investment) * 100

  • Importance: Helps assess the efficiency of an investment.

2

Capitalization Rate

  • Definition: Cap Rate evaluates the potential return on a real estate investment.

  • Formula: Cap Rate = (Net Operating Income / Current Market Value) * 100

  • Importance: A key metric for comparing different investment opportunities.

3

Cash Flow

  • Definition: Cash flow is the net amount of cash moving into and out of an investment.

  • Formula: Cash Flow = Rental Income - Operating Expenses

  • Importance: Positive cash flow ensures ongoing profitability.

4

Appreciation

  • Definition: Appreciation is the increase in the value of a property over time.

  • Types: Market appreciation, forced appreciation (through improvements).

  • Importance: Contributes to the long-term growth of an investment.

5

Debt Service Ratio

The Debt-Service Coverage Ratio (DSCR) is a financial metric that evaluates a property's ability to cover its debt obligations. It measures the property's ability to generate enough income to pay off its mortgage or other debt.

6

Gross Rent Multiplier

The Gross Rent Multiplier (GRM) is a simple metric used to assess the value of a rental property by comparing its price to its potential rental income. It helps investors quickly evaluate the income-generating potential of a property.

bottom of page