Calculate Real Estate Rates of Returns

 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

 

 

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