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)
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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