25 Real Estate Investment Ratios

There are several real estate investment ratios that are commonly used to evaluate the performance and potential profitability of a real estate investment. Here are some of the most common ones:

1.              Cap rate (Capitalization rate): It is the ratio of a property's net operating income (NOI) to its current market value. It is used to estimate the potential return on investment for a property, and it is often used by real estate investors to compare different properties.

2.              Return on investment (ROI): It is the ratio of the property's net profit to the total investment in the property. It is used to determine the profitability of a real estate investment.

3.              Return on equity (ROE): It is the ratio of the property's net income to the amount of equity invested in the property. It is used to measure the profitability of the equity invested in a property.

4.              Internal rate of return (IRR): It is a calculation of the annual rate of return generated by an investment over the duration of the investment. It is used to evaluate the potential profitability of a real estate investment over time.

5.              Gross rent multiplier (GRM): It is the ratio of the property's sale price to its gross rental income. It is used to quickly evaluate the potential profitability of a property and compare it to other properties.

6.              Cash-on-cash return (CCR): It is the ratio of the property's annual cash flow to the amount of cash invested in the property. It is used to measure the return on investment for the cash invested in a property.

7.              Debt service coverage ratio (DSCR): It is the ratio of a property's net operating income (NOI) to its debt service payments. It is used to determine whether a property is generating enough income to cover its debt payments.

8.              Modified internal rate of return (MIRR): It is a variation of the IRR that takes into account the reinvestment rate of cash flows generated by the investment. MIRR assumes that positive cash flows are reinvested at a specified rate, while negative cash flows are financed at the cost of capital.

9.              Discounted cash flow (DCF): It is a method of estimating the net present value (NPV) of an investment based on the expected future cash flows generated by the investment. The DCF method discounts all future cash flows back to their present value using a discount rate.

10.           Profitability index (PI): It is the ratio of the present value of future cash flows generated by an investment to the initial investment cost. A PI greater than one indicates that the investment is profitable, while a PI less than one indicates that it is not.

11.           Terminal capitalization rate: It is the cap rate used to estimate the value of a property at the end of an investment horizon. The terminal cap rate is used in conjunction with a projected cash flow in order to calculate the terminal value of an investment.

12.           Equity multiple: It is the ratio of the total cash distributions to equity investors to the amount of equity invested in a property. The equity multiple measures the total return on equity invested in a property and takes into account both the ongoing cash flows and the final sale price of the property.

13.           Operating expense ratio (OER): It is the ratio of a property's operating expenses to its gross operating income. It is used to determine how efficiently a property is being managed.

14.           Cash flow after tax (CFAT) ratio: It is the ratio of the property's cash flow after taxes to its total investment. It takes into account the impact of taxes on the property's cash flow.

15.           Debt yield ratio (DYR): It is the ratio of a property's net operating income (NOI) to its total loan amount. It is used to determine the return on the lender's investment and the risk associated with a particular loan.

16.           Operating profit margin (OPM) ratio: It is the ratio of a property's operating income to its total revenue. It is used to evaluate the efficiency of a property's operations and management.

17.           Rental growth rate (RGR): It is the rate at which rental income is expected to grow over a given period. It is used to estimate the future cash flows of a property and its potential for appreciation.

18.           Cash flow-to-debt ratio: It is the ratio of a property's annual cash flow to its total debt. It is used to evaluate the ability of a property to generate cash flow and cover its debt obligations.

19.           Total return: It is the sum of all cash flows generated by an investment, including both income and capital gains, divided by the initial investment. The total return measures the total profitability of an investment over time and takes into account both ongoing cash flows and changes in the property's value.

20.           Loan-to-value (LTV) ratio: It is the ratio of a property's loan amount to its appraised value. It is used by lenders to determine the risk of a loan and by investors to evaluate the level of leverage in a real estate investment.

21.           Equity dividend rate (EDR): It is the ratio of the property's annual cash flow to the equity invested in the property. It is similar to cash-on-cash return but focuses on the return on the equity invested in the property, rather than the total amount invested.

22.           Gross income multiplier (GIM): It is the ratio of the property's sale price to its gross annual income. It is used to quickly compare the price of a property to its potential income.

23.           Break-even ratio (BER): It is the ratio of a property's operating expenses to its gross rental income. It is used to determine the level of rental income needed to cover a property's expenses and break even.

24.           Price per SQM: It is the sale price of a property divided by its total square meter. It is commonly used to compare the value of similar properties in a given area.

25.           Operating cash flow (OCF) ratio: It is the ratio of a property's operating cash flow to its debt service payments. It is used to determine whether a property is generating enough cash flow to cover its debt payments.