Total investment costs include the purchase price, closing costs, and rehab/repair costs. This is the total amount of capital invested to acquire and prepare the property for rental or sale. Typical national averages for closing costs range from 3-6% of the purchase price.
NOI is calculated as the total rental income plus any other income generated by the property minus operating expenses. Operating expenses typically include property management fees, utilities, property taxes, insurance, and maintenance. The national average operating expense ratio is around 35-45% of gross rental income.
Operating expenses include all costs associated with managing and maintaining the property. This includes property management fees, insurance, taxes, repairs, and utilities. It does not include the mortgage payment. The average operating expense ratio is 35-45% of gross income.
The expected monthly payment includes the mortgage payment, property taxes, and insurance. Mortgage payments are calculated based on the loan amount, interest rate, and loan term. National average mortgage rates vary but are typically between 5-7% for investment properties.
Monthly cash flow is calculated by subtracting the total monthly expenses (including mortgage payment, taxes, insurance, and operating expenses) from the total monthly income. A positive cash flow indicates that the property is generating income after covering all expenses.
Debt Yield is calculated by dividing the annual NOI by the loan amount. It is expressed as a percentage and is used by lenders to assess the risk of the loan. A typical debt yield for investment properties is 8-12%.
IRR is the annualized return on investment over the holding period, factoring in cash flows and the eventual sale of the property. A higher IRR indicates a more profitable investment. The average IRR for real estate investments is typically between 8-15%.
Cash-on-cash return measures the annual cash flow relative to the initial cash investment. It is calculated as the annual cash flow divided by the total cash invested. A desirable cash-on-cash return for rental properties is typically 8-12%.
Cap Rate is the ratio of the property's NOI to its purchase price. It indicates the expected return on investment without considering financing. Average cap rates vary by market but generally range from 5-10%.
DSCR is calculated by dividing the annual NOI by the total annual debt service (mortgage payment). A DSCR of 1.2 or higher is generally required by lenders, indicating that the property generates enough income to cover its debt obligations with some margin.