6 Real Estate Metrics All Pro Investors Track

38 Shares

Reading Time: 6 minutes

Pro investors know they need to monitor various real estate metrics. This ensures the ventures remain profitable. But which metrics should you be tracking specifically?

Real estate metrics are all the figures and statistics that matter to the moguls. These insights can help you achieve success in the market. This article cover the top six calculations you need to know.

6 Real Estate Metrics All Pro Investors Track

Cash Flow

At the top of the list is cash flow. This metric is vital because it tells investors how much money their properties are generating after considering expenses.

When cash flow is positive, it usually means that a property is generating profit. It means that costs like the mortgage, insurance and maintenance are lower than the income or rent.

Cash Flow Formula:

Cash Flow = Total Income – Total Expenses

Breaking it Down:

Total Income:

Rental Income
Other Income (parking fees, laundry, pet rent, etc.)

Total Expenses:

Mortgage Payment (if applicable)
Property Taxes
Insurance
Maintenance & Repairs
Property Management Fees
Utilities (if landlord pays)
HOA Fees (if applicable)

Example Calculation:

Rental Income: $2,500/month
Expenses: $1,500/month
Cash Flow: $2,500 – $1,500 = $1,000/month

Positive cash flow means your investment is profitable. Negative cash flow means you’re losing money and need to reassess expenses or income potential.

photo of man in front of laptop 6 Real Estate Metrics All Pro Investors Track

Capitalization Rate

The capitalization rate also matters. You often see people asking, what is capitalization rate? Essentially, it is the net profit of the original investment after costs relative to the purchase price of the asset.

Let’s say that the property costs $100,000 and the net income is $10,000 per year. The capitalization rate would be 10% in this situation, even if the gross income from the asset is much higher.

Cap Rate Formula:

Cap Rate = (Net Operating Income ÷ Property Value) × 100

Breaking it Down:

Net Operating Income (NOI):

Total Rental Income
Minus Operating Expenses (property taxes, insurance, maintenance, management fees, etc.)

Property Value:

The current market value or purchase price of the property.

Example Calculation:

Net Operating Income (NOI): $50,000/year
Property Value: $500,000
Cap Rate: ($50,000 ÷ $500,000) × 100 = 10%

A higher cap rate (8-12%) may indicate higher risk but better returns.
A lower cap rate (4-6%) suggests a more stable but lower-yield investment.

Cash-on-cash Return

Another metric that real estate investors love is the cash-on-cash return. This measures the pre-tax cash flow of a real estate investment relative to the total cash invested.

This statistic is useful for real estate investors who want to compare their returns to other options, such as buying stocks. Cash-on-cash returns tell them what they need to put in from their personal finances to get something back out. Often, this metric paints a rosier picture of investments than other metrics, like the cap rate.

Cash-on-Cash Return Formula:

CoC Return = (Annual Pre-Tax Cash Flow ÷ Total Cash Invested) × 100

Breaking it Down:

Annual Pre-Tax Cash Flow:

Total Rental Income
Minus Operating Expenses & Mortgage Payments

Total Cash Invested:

Down Payment
Closing Costs
Renovation Costs (if applicable)

Example Calculation:

Annual Pre-Tax Cash Flow: $12,000
Total Cash Invested: $100,000
Cash-on-Cash Return: ($12,000 ÷ $100,000) × 100 = 12%

Higher CoC Return = Better cash flow relative to investment.
Lower CoC Return = May indicate high upfront costs or lower cash flow.

a person reading documents and reports 6 Real Estate Metrics All Pro Investors Track

Internal Rate of Return

The internal rate of return is another fairly complex metric but also one that’s worth exploring. It refers to the annualized return of investments over time, factoring in cash flows and the time value of money.

People who plan to get into real estate for the long haul often use this metric. It allows them to calculate how much money they are likely to make over several decades, and what it’s worth today.

IRR Definition:

IRR is the discount rate that makes the Net Present Value (NPV) of all future cash flows equal to zero.

Breaking it Down:

Initial Investment: Money put into the property (down payment, renovations, etc.).
Annual Cash Flows: Rental income minus expenses (for each year of ownership).
Sale Proceeds: Property appreciation & final sale value.

Formula (Conceptual):

Initial Investment =? (Annual Cash Flow in Year t ÷ (1+IRR)^t)

Where:

IRR = Internal rate of return
t = Time in years

Since solving IRR requires trial and error, investors typically use financial calculators, Excel, or investment software.

Example Calculation:

Initial Investment: $100,000
Year 1 Cash Flow: $5,000
Year 2 Cash Flow: $5,500
Year 3 Cash Flow: $6,000
Year 4 Sale Proceeds: $120,000

Plugging these into an IRR calculator yields an IRR of ~12% ?

Why IRR Matters:

Includes Cash Flow & Appreciation.
Better for Long-Term Investment Analysis.
Helps Compare Multiple Properties.

black calculator near ballpoint pen on white printed paper 6 Real Estate Metrics All Pro Investors Track

Operating Expense Ratio

The operating expense ratio is a statistic borrowed from the general business community, but it still applies heavily in the real estate industry (especially for investors who set up real estate investing firms).

It refers to the operating expenses divided by the gross income. The lower the ratio, the more efficient the property management business is.

Formula in Words:

Operating Expense Ratio (OER) = Total Operating Expenses ÷ Gross Operating Income

Step-by-Step Breakdown:

Calculate Total Operating Expenses

Includes maintenance, property management, utilities, insurance, property taxes, and repairs
Excludes mortgage payments and capital expenditures

Calculate Gross Operating Income (GOI)

Total rental income plus other property-related revenue (laundry, parking, etc.),
Minus vacancy losses

Divide Expenses by Income

OER = (Total Operating Expenses ÷ Gross Operating Income) × 100 (to express as a percentage)

Example Calculation:

Gross Operating Income: $100,000
Total Operating Expenses: $40,000
OER Calculation: ($40,000 ÷ $100,000) × 100 = 40%

Why OER Matters:

Evaluates efficiency of property management.
Helps compare properties & identify high-cost areas.
Lower OER = More Profitable Investment.

a wooden signage beside the wooden house 6 Real Estate Metrics All Pro Investors Track

Vacancy Rate

Finally, real estate investors need to keep a close eye on the vacancy rate. This measures the length of time the property remains unoccupied.

Usually, investors calculate it as the number of vacant days compared to the total days in the year, multiplied by 100 to give a percentage. Higher rates are usually better and signal a superior investment.

If you can keep track of all these metrics and use them sensibly in your business, you’ll be ahead of 90% of your competitors and rivals.

Formula in Words:

Vacancy Rate = (Number of Vacant Units ÷ Total Units) × 100

Vacancy Rate = (Vacant Unit-Days ÷ Total Rental Unit-Days) × 100 (for properties with varying vacancy periods)

Step-by-Step Breakdown:

Determine the number of vacant units

Count how many rental units were unoccupied during the period.

Divide by the total number of units

If you own 10 units and 2 are vacant, the calculation is 2 ÷ 10.

Multiply by 100 to express as a percentage

(2 ÷ 10) × 100 = 20% vacancy rate

Alternative Calculation for Partial-Year Vacancies:

If a single unit was vacant for 90 days in a year, while the property had 365 total rentable days, then:
Vacancy Rate = (90 ÷ 365) × 100 = 24.7%

Why Vacancy Rate Matters:

Indicates rental demand in a market
Helps forecast rental income stability
Higher vacancy = lower profitability

real estate agent showing sketch to costumers 6 Real Estate Metrics All Pro Investors Track

Summary: Pro Tips for Analyzing Real Estate Metrics

Pro Tip 1: Always analyze cash flow before purchasing a rental property to ensure long-term profitability!

Pro Tip 2: Use cap rates to compare properties, but also consider factors like appreciation and financing costs for a full investment picture!

Pro Tip 3: Cash on cash return does not factor in property appreciation—so use it alongside Cap Rate & Cash Flow for a complete investment analysis!

Pro Tip 4: A higher internal rate of return indicates a better return relative to risk, but always compare with market conditions and alternative investments!

Pro Tip 5: A healthy Operating Expenses Ratio for rental properties typically falls between 35%-50%, depending on property type and location!

Pro Tip 6: A healthy vacancy rate varies by location, but below 5% is ideal in strong rental markets!

Real Estate Investing Tools

Evolve Vacations

Receive a $250 management fee credit when you sign up for professional property management with Evolve Vacations through my agent link!

I love Evolve’s industry low 10% management fee and toolbox of smart technology for vacation rental owners. Email me for more information on how I manage my investment properties with Evolve.

Deal Check

Deal Check is an amazing tool I use to analyze potential real estate investments. Before purchasing a new vacation rental property, I always run numbers through this app to verify the investment potential. Use my special discount code BESTDEAL for 20% off your subscription.

VRBO

VRBO is the world’s leading online marketplace for the vacation rental industry representing over 2 million vacation rentals in 190 countries. VRBO is a part of the Expedia, Inc. family of brands.

RentRedi

RentRedi has an all-in-one property management software for landlords. Collect rent online with their mobile app.

Lofty

Lofty is a cutting edge customer relationship manager (CRM) for real estate agents.

After using Lofty’s Sales Acceleration Platform, my lead volume, conversion rate, sales, and commissions have skyrocketed! The all-in-one solution includes CRM, IDX Website, AI Sales Assistant, Marketing Automation, and more.

Check it out! – Register for a demo using my referral link.