Secrets to Expertly Analyzing Investment Property Fast
Key Metrics for Quick Analysis
When analyzing investment properties, there are several key financial metrics that can provide a quick snapshot of the property's potential:
1. **Cap Rate**: The capitalization rate is a measure of the expected return on an investment property. It is calculated by dividing the net operating income (NOI) by the property's current market value. A higher cap rate indicates a potentially more profitable investment1.
2. **Cash-on-Cash Return**: This metric measures the return on cash invested in the property. It is calculated by dividing the annual pre-tax cash flow by the total cash invested. This is particularly useful for investors who have financed their property with a mortgage2.
3. **Gross Rent Multiplier (GRM)**: GRM is a simple way to estimate the value of an investment property. It is calculated by dividing the property's purchase price by its gross annual rental income. A lower GRM suggests a better investment opportunity3.