Glossary of Investment Metrics

Year 1 Cap Rate

Annual net operating income divided by purchase price; shows the property’s yield.

Rule of Thumb: 5–8% (SFH/MFH), 6–10% (Commercial)

Notes: Higher in riskier/tertiary markets.

Applies to: Buy_And_Hold, Brrrr

Operating Expense Ratio

Operating expenses as a percentage of gross rental income.

Rule of Thumb: 35–50%

Notes: 50% “rule” is classic quick test.

Applies to: Buy_And_Hold, Brrrr

NOI (Net Operating Income)

Total income minus operating expenses, before debt service.

Notes: Higher is better; key input for valuation.

Applies to: Buy_And_Hold, Brrrr

Annual Cash Flow

Yearly income remaining after all expenses and debt service.

Rule of Thumb: Positive (> $0); ideally $100–$200+ per door

Notes: Negative = red flag for most investors.

Applies to: Buy_And_Hold, Brrrr

Price per Square Foot

Purchase price divided by total square footage.

Notes: Benchmark vs. recent comparable sales in the specific micro-market.

Applies to: Buy_And_Hold, Flip, Brrrr

Gross Rent Multiplier (GRM)

Property price divided by gross annual rent; a quick valuation tool.

Rule of Thumb: 6–12

Notes: Lower is better; regional variance.

Applies to: Buy_And_Hold, Brrrr

Exit Cap Rate

Expected cap rate at sale or disposition of the property.

Rule of Thumb: Equal or higher than entry cap rate

Notes: Use higher exit cap for conservative projections.

Applies to: Buy_And_Hold, Brrrr

ARV (After Repair Value)

Estimated market value after renovations or improvements.

Notes: Determined by recent, comparable sales of similar renovated properties.

Applies to: Flip, Brrrr

Rent per Bedroom

Average monthly rent divided by the number of bedrooms.

Notes: Market dependent; compare to comps (especially for MFH/student housing).

Applies to: Buy_And_Hold, Brrrr

Exit Sale Price/SF

Projected sale price divided by square footage at time of exit.

Notes: Benchmark against projected market comps at time of exit; be conservative.

Applies to: Buy_And_Hold, Flip, Brrrr

Cap Rate Spread (to Treasury)

Difference between the property cap rate and the 10-year Treasury yield.

Rule of Thumb: ≥ 3%

Notes: Higher indicates better risk premium.

Applies to: Buy_And_Hold, Brrrr

DSCR (Debt Service Coverage)

Net operating income divided by total annual debt payments.

Rule of Thumb: ≥ 1.20x (lender minimum), ≥ 1.25x preferred

Notes: DSCR <1.0 means negative cash flow.

Applies to: Buy_And_Hold, Brrrr

LTV (Loan-to-Value)

Loan amount divided by property value, expressed as a percentage.

Rule of Thumb: ≤ 75–80%

Notes: Purchase: ≤ 75–80% (conventional). Refi/Flip: Varies by loan type & ARV.

Applies to: Buy_And_Hold, Flip, Brrrr

Debt Yield

Net operating income divided by total loan amount.

Rule of Thumb: ≥ 8–10%

Notes: Primarily a lender metric for risk assessment.

Applies to: Buy_And_Hold, Brrrr

Refi LTV (%)

Loan-to-value ratio at time of refinance; key for BRRRR deals.

Rule of Thumb: ≤ 70–75%

Notes: Of ARV for cash-out refinance (lender dependent).

Applies to: Brrrr

DSCR at Refi

Debt service coverage ratio at time of refinance.

Rule of Thumb: ≥ 1.20x–1.25x

Notes: On post-refi debt (lender dependent).

Applies to: Brrrr

Loan Constant

Annual debt service divided by total loan; measures loan payment “cost.”

Rule of Thumb: 5–8%

Notes: Lower preferred; helps compare true cost of loans.

Applies to: Buy_And_Hold, Brrrr

Cash-on-Cash Return

Annual cash flow divided by total cash invested.

Rule of Thumb: ≥ 8% (good), ≥ 12% (very good)

Notes: Varies by market and leverage.

Applies to: Buy_And_Hold, Brrrr

Total Return (IRR)

Internal Rate of Return; measures total annualized return over the holding period.

Rule of Thumb: ≥ 10–12% (good), ≥ 15% (excellent)

Notes: Considers time value of money.

Applies to: Buy_And_Hold, Flip, Brrrr

Payback Period (Years)

Years required to recover initial cash invested from net annual cash flow.

Rule of Thumb: ≤ 5–7 years

Notes: How quickly initial investment is recouped via cash flow.

Applies to: Buy_And_Hold, Brrrr

Annual Rent Growth

Expected yearly increase in rental income, expressed as a percentage.

Rule of Thumb: 2–4%

Notes: Typical; use local historical data and market forecasts.

Applies to: Buy_And_Hold, Brrrr

Annual Expense Growth

Anticipated annual increase in property operating expenses.

Rule of Thumb: 2–4%

Notes: Typical inflation; align with rent growth or use specific estimates.

Applies to: Buy_And_Hold, Brrrr

Appreciation Rate

Expected annual increase in the property’s market value.

Rule of Thumb: 2–3%

Notes: Conservative long-term average.

Applies to: Buy_And_Hold, Brrrr

Equity Multiple (MOIC)

Total cash received divided by total cash invested (Multiple on Invested Capital).

Rule of Thumb: ≥ 1.8–2.0x

Notes: Strong indicator of total cash profit relative to cash invested.

Applies to: Buy_And_Hold, Flip, Brrrr

Return on Equity (ROE)

Annual cash flow as a percent of current equity invested.

Rule of Thumb: ≥ 10–15%

Notes: Important for evaluating performance of trapped equity over time.

Applies to: Buy_And_Hold, Brrrr

Profit Margin (%)

Net profit as a percent of cash invested: (Net to Investor - Total Cash Invested) / Total Cash Invested.

Rule of Thumb: ≥ 15–30% (typical target for flips)

Notes: Net to Investor = sale proceeds minus all costs and debts. Margin reflects total return on invested cash.

Applies to: Buy_And_Hold, Flip, Brrrr

1% Rule

Monthly rent should be at least 1% of the purchase price.

Rule of Thumb: ≥ 1%

Notes: Quick screening tool, less applicable in HCOL areas.

Applies to: Buy_And_Hold, Brrrr

2% Rule

Monthly rent should be at least 2% of purchase price; rarely met but popular among some investors.

Rule of Thumb: ≥ 2%

Notes: Rare, usually in low-cost markets or distressed properties.

Applies to: Buy_And_Hold, Brrrr

70% Rule (Flip MAO)

Max allowable offer (MAO) is 70% of ARV minus repair costs; used for flips.

Rule of Thumb: ≤ 70% of ARV minus repairs

Notes: Classic quick filter for flips.

Applies to: Flip, Brrrr

50% Rule

Half of rental income goes to expenses; a quick back-of-the-napkin test.

Rule of Thumb: ≈ 50%

Notes: Operating Expenses ≈ 50% of Gross Operating Income (quick estimate, not for detailed analysis).

Applies to: Buy_And_Hold, Brrrr

Rent-to-Value Ratio

Monthly rent divided by property value; another quick rental yield test.

Rule of Thumb: ≥ 0.8–1.0%

Notes: Similar to 1% Rule.

Applies to: Buy_And_Hold, Brrrr

Break-Even Occupancy

Minimum occupancy rate needed to cover all expenses and debt service.

Rule of Thumb: ≤ 85%

Notes: Lower indicates less risk if vacancies occur.

Applies to: Buy_And_Hold, Brrrr

Total Cash Invested

Sum of all upfront cash needed: down payment, rehab, and closing costs.

Notes: Key input for CoC, IRR; goal is to know and often minimize for leverage.

Applies to: Buy_And_Hold, Flip, Brrrr

Gross Yield

Annual gross rent divided by purchase price; quick rent yield.

Rule of Thumb: ≥ 8–10%

Notes: Desirable; quick check of pre-expense rental return.

Applies to: Buy_And_Hold, Brrrr

Rent-to-Gross Income Ratio

Monthly gross income as a percent of purchase price.

Rule of Thumb: ≥ 0.8–1.0%

Notes: If property's monthly rent to price; OR tenant's rent ≤ 25–35% of tenant's gross income.

Applies to: Buy_And_Hold, Brrrr

Rehab Cost as % of ARV

Total rehab cost divided by ARV, expressed as a percent.

Rule of Thumb: Varies by project depth (typically ≤ 20%)

Notes: Ensure it aligns with profit/equity creation goals and 70% Rule limits for flips/BRRRRs.

Applies to: Flip, Brrrr

Operating Expense per Unit

Total annual operating expenses divided by number of units.

Rule of Thumb: $3,000–$6,000 per unit/year

Notes: Highly market/property type dependent; mainly for MFH.

Applies to: Buy_And_Hold, Brrrr

Cash Out at Refi

Dollars taken out at refinance, after new loan pays off old debt and closing costs.

Rule of Thumb: Positive value; ideally recoup most/all of initial cash invested

Notes: Ensure property still cash flows well with healthy DSCR after.

Applies to: Brrrr