Real Estate Investment Formula Reference

Core Investment Metrics

Cap Rate (Capitalization Rate)

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

Example:

• Property Value: $300,000

• Annual NOI: $24,000

• Cap Rate: ($24,000 ÷ $300,000) × 100 = 8.0%

Cash-on-Cash Return

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

Example:

• Total Cash Invested: $75,000

• Annual Cash Flow: $8,400

• CoC Return: ($8,400 ÷ $75,000) × 100 = 11.2%

DSCR (Debt Service Coverage Ratio)

DSCR = Net Operating Income ÷ Annual Debt Service

Example:

• Annual NOI: $27,000

• Annual Debt Service: $21,000

• DSCR: $27,000 ÷ $21,000 = 1.29

Income Calculations

Gross Rental Income

Gross Income = Monthly Rent × 12 + Other Annual Income

Effective Gross Income

Effective Income = Gross Income × (1 - Vacancy Rate)

Example:

• Annual Gross Income: $36,000

• Vacancy Rate: 5%

• Effective Income: $36,000 × 0.95 = $34,200

Net Operating Income (NOI)

NOI = Effective Gross Income - Operating Expenses

Note: Operating expenses do NOT include mortgage payments, but do include property tax, insurance, HOA, maintenance, management fees, utilities, etc.

Mortgage Calculations

Monthly Mortgage Payment

Payment = P × [r(1 + r)^n] ÷ [(1 + r)^n - 1]

Where:

• P = Principal (loan amount)

• r = Monthly interest rate (annual rate ÷ 12)

• n = Total number of payments (years × 12)

Example:

• Loan Amount: $240,000

• Interest Rate: 6% annual (0.5% monthly)

• Term: 30 years (360 payments)

• Monthly Payment: $1,439

Total Loan Amount

Loan Amount = Property Price × (1 - Down Payment %)

Cash Flow Analysis

Monthly Cash Flow

Cash Flow = (Rental Income - All Expenses) - Mortgage Payment

Example:

• Monthly Rent: $3,000

• Operating Expenses: $1,000

• Mortgage Payment: $1,439

• Monthly Cash Flow: $3,000 - $1,000 - $1,439 = $561

Rule of Thumb Formulas

1% Rule

Monthly Rent ≥ 1% of Purchase Price

Quick screening: A $200,000 property should rent for at least $2,000/month.

2% Rule

Monthly Rent ≥ 2% of Purchase Price

Excellent cash flow: A $200,000 property renting for $4,000/month = exceptional deal.

50% Rule

Operating Expenses ≈ 50% of Gross Rental Income

Quick estimate: If rent is $2,000/month, budget $1,000 for expenses (excluding mortgage).

Appreciation & Growth

Future Value with Appreciation

Future Value = Current Value × (1 + Growth Rate) ^ Years

Example:

• Current Value: $300,000

• Annual Appreciation: 3%

• Time Period: 5 years

• Future Value: $300,000 × (1.03)^5 = $347,782

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