Real Estate Metrics 101: Issue 1

📊 Cap Rate (Capitalization Rate)

Cap rate is a quick way to assess a property's return potential. It's calculated as:

Why it matters:

• Helps compare properties on an apples-to-apples basis.

• A higher cap rate generally indicates higher risk, higher return.

• A lower cap rate often means lower risk, lower return—typical in prime markets.

🔍 Pro Tip: Cap rates vary by market and asset type - know your local benchmarks.

💡 IRR (Internal Rate of Return)

IRR measures the total expected return on an investment over time, factoring in cash flow, appreciation, and time value of money.

Why it matters:

• Gives a more comprehensive look at long-term investment performance.

• Useful for comparing projects with different timelines and cash flow patterns.

🧠 Think of IRR as the “annualized yield” of your total investment performance.

💵 Cash-on-Cash Return

This metric shows the return on the actual cash you’ve invested. It's calculated as:

Why it matters:

• Great for evaluating leveraged investments (using a mortgage).

• Helps answer: “What’s my return on the money I put in?”

📈 Gross Rent Multiplier (GRM)

GRM compares a property’s price to its gross rental income. It's calculated as:

Why it matters:

• Simple way to screen properties quickly.

• Best used as a starting point before digging into deeper analysis.

🏁 Final Thoughts

Understanding these key metrics isn’t just for spreadsheets - it’s about making confident, informed investment decisions. The more fluent you are in the language of real estate finance, the better positioned you’ll be to grow your portfolio strategically.

Whether you're evaluating your first duplex or a 100-unit apartment building, keep these tools in your investor toolkit.

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