The numbers that matter
| Metric | Formula | What it tells you |
|---|---|---|
| NOI | Effective rent − operating expenses | Profit before financing |
| Cap rate | NOI ÷ purchase price | Return ignoring the mortgage |
| Cash-on-cash | Annual cash flow ÷ cash invested | Return on your actual cash |
| DSCR | NOI ÷ annual debt payments | Whether rent covers the loan |
Common mistakes
Many first-time investors underestimate vacancy, maintenance and capital expenses such as roofs and HVAC. Budget for them even if the property is in good shape, and stress-test by raising the rate and lowering the rent. If the property only works with perfect occupancy, the margin for error is too thin.