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- Current ratio: This ratio compares current assets to current liabilities. A higher current ratio indicates a strong ability to cover short-term obligations. For example, if a property has $500,000 in current assets and $200,000 in current liabilities, the current ratio is 2.5, suggesting good liquidity.
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Cap rate is the real estate equivalent of the stock market’s return on investment. It’s the ratio between the amount of income produced by a property to the original capital invested (or its current value). It tells you the percentage of the investment’s value that’s profit.
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- Net Operating Income (NOI) NOI = Operating Income – Operating Expenses. Net Operating Income (NOI) is the income left after accounting for your operating expenses and BEFORE debt service.
- Capitalization Rate (Cap Rate) Cap Rate = NOI / Purchase Price. The Capitalization Rate (or “Cap Rate” for short) can be used as a simple calculation to compare similar properties.
- Rent to Cost Ratio. Rent to Cost Ratio = Monthly Rent / Total Property Cost. The Rent to Cost Ratio is another quick way to compare similar properties to each other.
- Gross Rental Multiplier (GRM) GRM = Total Property Cost / Gross Annual Rent. The Gross Rent Multiplier (GRM) is another way of looking at the rent to cost ratio, and basically gives you the same information in a different format (an annualized number that is the inverse of rent to cost).
Sep 13, 2024 · What is a good current ratio for real estate properties? A good current ratio typically ranges from 1.5 to 2.0, indicating that a property has sufficient current assets to cover its current liabilities. However, the ideal ratio can vary based on the property type and market conditions.
- Return on Investment (ROI) ROI is a universal investment metric that allows investors to see how much profit they make from an investment, expressed as a percentage of the amount invested.
- Internal Rate of Return (IRR) Internal rate of return (IRR) is a complex calculation that allows you to account for the time value of money using a “discount rate,” which works like an interest rate in reverse.
- Appreciation. Appreciation simply means the growth in value of an asset over time. So appreciation in real estate is the increase in the value of a property over the time you own it.
- Cash Flow. Cash flow is the amount of income your investment generates on a regular basis. In real estate investing, this often relates to rental income collected (plus other rental fees like parking and pet rent).
- Net operating income or NOI. Think of the property’s NOI as a high-level income statement; it shows how much money you can make from the property in question.
- Capitalization rate. Better known as cap rate, this ratio shows what percentage of property’s value is profit. If you trade in the stock market, you can think of the cap rate as the return on your stock investments.
- Internal rate of return or IRR. This metric estimates the interest you might earn on your investment in a commercial rental property for the length of time you decide to hold it.
- Cash flow. This number shows the net cash left at the end of the month after all expenses are paid, and rents are received. It’s a snapshot of how well a property is doing in terms of generating revenue.
Aug 16, 2024 · The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize...
May 16, 2024 · Current Ratio = Current Assets / Current Liabilities. This formula provides a straightforward way to gauge a company’s liquidity and its ability to meet short-term financial obligations....
