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Still Investing? Here's How To Calculate Real Estate Rates of Returns

Looking for investment properties to add to your portfolio? Contact DMK Realty in Darien, Connecticut for local knowledge and experience. 

DMK providing step by step real estate assistance for buyers, sellers, builders, landlords and tenants.

 How To Calculate Real Estate Rates of Returns

Calculation Reference Sheet

 

Gross Operating Income (GOI)

This is a calculation of the total potential monthly rental income (also known as gross rents or gross potential income). Remember if a vacancy reserve is not included in the expenses, it should be subtracted from the total potential rental income.

Net Operating Income (NOI)

This is a calculation of gross operating income (GOI) minus expenses

                NOI = (GOI)-Operating Expenses
           

Cap Rate (Capitalization Rate)      

                (NOI) divided by (Purchase Price) = Cap Rate           

This a calculation of the yearly net operating Income (NOI) divided by the value, or the purchase price.

 

Debt Service Ratio (DSR)

This is a calculation of the NOI, divided by the debt service, or mortgage payment(s). This number must be greater than 1.2     

                (NOI) divided by (Mortgage) = (DSR)

Cash Flow

This is a calculation of the (NOI) minus the debt service, or mortgage. Take this number multiply it by 12 to determine your yearly cash flow.

            NOI – Debt Service = Cash Flow

 

Cash on Cash Return (CCR)

This is a calculation of the yearly cash flow divided by the initial cash investment, which would include down payment and all closing costs.

                 Cash Flow divided by Initial Cash Investment = CCR

P. Winston Heverly, GRI, ABR, SFR, CDPE, CIAS, PA

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David Popoff
Connecticut Licensed Real Estate Broker
Realtor® Green
Seller Representative Specialist
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LEED AP Homes

 

DMK Real Estate, Darien, CT.
Cell (203) 228-0646
DMKrealestate.com

 

 

 

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Comment balloon 3 commentsDavid Popoff • January 25 2016 05:57AM
Still Investing? Here's How To Calculate Real Estate Rates of Returns
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