Fund That Flip compiled a list of 10 metrics that are important for real estate investing, as well as information on how to calculate them and what they are used for, using research from investors, bankers, and financial news reports.
, or LTV, is a metric used by lenders and other financial institutions to determine the risk associated with issuing a mortgage loan. While the LTV ratio isn’t limited to real estate investor loans, it does factor heavily into the equation for investors who need to obtain financing for real estate purchases. That’s because loans with higher LTV ratios will typically be considered by lenders to be higher risk, as the investor has less equity in the property and therefore a higher risk of default.
for an investment. By calculating the NOI, an investor can easily determine both the revenue and profitability—minus the associated operating expenses.What’s unique about NOI is that, unlike many other types of formulas, it takes into account all of the income a property can generate after subtracting all of the general expenses. This includes the expenses associated with taxes, insurance, maintenance, repairs, and even vacancies.
To determine a property’s gross rent multiplier, divide the property’s sales price by the potential monthly rental income. For example, if a property’s purchase price is $200,000 and the potential monthly rental income is $2,000, the GRM would be 8.33, i.e., 200,000/24,000 . This GRM is then compared to other investment properties in the area to determine what properties may perform the best.
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