Definitions
| Metric | Definition/Description |
|---|---|
| Annual Cashflow | Cash generated by the investment property over a year after operating expenses (suchas insurance, property taxes, capex, maintenance, capex etc.) and mortgage payments (including both principle and interest) are paid. The metric calculates the annual cash the property can generate after paying all expenses and servicing the debt. |
| Cash on Cash Return (%) | Annual cashflow divided by total initial cash invested into the property to purchase the property and get it ready to be rented (cash investment will include down payment, closing costs, renovations and any other cost to purchase the property and get the property ready to rent). The metric calculates the annual cash the property can generate as a % of the amount you invested. |
| Operating Expenses | Operating expenses are ongoing costs to maintain and keep a rental property investment in service. In other words, they're the costs that affect the day-to-day operation of the investment and are considered necessary to keep the revenue stream flowing. |
| Operating Expense Ratio | Operating Expenses as a % of total rental income. |
| Net Operating Income (NOI) | Rental Revenue less operating expenses. The metric measure the income the property can generate before the cost of servicing the debt. |
| Debt Service Coverage Ratio | Annual Net Operating Income divided by Annual Mortgage Payments. This is a key metric lenders will analyze use when assessing if they will provide commercial financing. A lender will generally want the see a Debt Service coverage ratio of at least 1.2x, which would mean your NOI is 20% higher your mortgage payments. This provides the lender security that your property can generated enough income to support the mortgage payments. |
| Net Income (Rental Revenue less Operating Expenses and Interest Expense) | Net Income is total rental revenue less property operating expenses less interest paid on mortgage debt. |
| Property Appreciation Assumption ($) | The dollar value your property will appreciate in a particular year given you property appreciation % assumption. |
| Return on Investment (ROI) (%) (Assuming NO Appreciation) | (Annual Cashflow + Mortgage Principle payments) /(Initial cash invested to purchase to property). The metric assumes no annual appreciation on the property in order to assess the return on investment regardless of real estate market conditions outside of the investors control. |
| Return on Investment (ROI) ($) (Assuming NO Appreciation) | Annual Cashflow + Mortgage Principle payments |
| Return on Investment (ROI) (%) (WITH Appreciation Assumption) | (Annual Cashflow + Mortgage Principle payments+Annual Property Appreciation)/(Initial cash invested to purchase to property). This metric will provide you with your return-on-investment factoring in the appreciation of the property in addition to annual cashflow and mortgage paydown expressed as a %. |
| Return on Investment(ROI) ($) (WITH Appreciation Assumption) | Annual Cashflow + Mortgage Principle payments+Annual Property Appreciation. This metric will provide you with your return on investment factoring in the appreciation of the property in addition to annual cashflow and mortgage paydown expressed in $. |
| Capitalization Rate (Cap Rate) | Net Operating Income (NOI) / Property Purchase Price. |
| Capitalization Rate (Including all closing costs) | Net Operating Income (NOI) / Property Purchase Price + Closing Costs+Other Costs ready to get the property ready to rent. |
| Total 5 Year Return with Appreciation Assumption (in $) | Cumulative Annual Cashflow + Mortgage Principle payments + Annual Property Appreciation over a 5 year period. |
LEGAL DISCLAIMER
The information and materials contained within this financial model are for general information purposes only and are not intended to constitute financial, legal or other professional advice and should not be relied on or treated as a substitute for specific professional advice.
We make no warranties, representations or undertakings about any of the content within this model (including, without limitation to the quality, accuracy, completeness or fitness for any particular purpose of such content). We make no representations, warranties or guarantees, whether express or implied, that the content in this model is accurate, complete or up-to-date.
Each individuals investments are highly specific and if legal, accounting, tax, investment, financial planning or other professional advice or assistance is required: the services of a competent professional person should be sought.
