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How To Calculate Real Estate Rates of Returns
Calculation Reference Sheet
Gross Operating Income (GOI)
This is a calculation of the total potential monthly rental income (also known as gross rents or gross potential income). Remember if a vacancy reserve is not included in the expenses, it should be subtracted from the total potential rental income.
Net Operating Income (NOI)
This is a calculation of gross operating income (GOI) minus expenses
NOI = (GOI)-Operating Expenses
Cap Rate (Capitalization Rate)
(NOI) divided by (Purchase Price) = Cap Rate
This a calculation of the yearly net operating Income (NOI) divided by the value, or the purchase price.
Debt Service Ratio (DSR)
This is a calculation of the NOI, divided by the debt service, or mortgage payment(s). This number must be greater than 1.2
(NOI) divided by (Mortgage) = (DSR)
This is a calculation of the (NOI) minus the debt service, or mortgage. Take this number multiply it by 12 to determine your yearly cash flow.
NOI – Debt Service = Cash Flow
Cash on Cash Return (CCR)
This is a calculation of the yearly cash flow divided by the initial cash investment, which would include down payment and all closing costs.
Cash Flow divided by Initial Cash Investment = CCR
P. Winston Heverly, GRI, ABR, SFR, CDPE, CIAS, PA
We service all of Palm Beach County and S. Florida
513 N. Country Club Drive, Suite 200, Atlantis, FL 33462
Office: (561) 247-7376 - Fax: (561) 537-7223 - Cell: (561) 629-2660
Email: PWH@WinstonRealty.co - Web: WinstonRealty