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Key Terms to Know



  • Definition: ROI measures the profitability of an investment.

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

  • Importance: Helps assess the efficiency of an investment.


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.


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.



  • 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.


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.


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.

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