The Top 8 Real Estate Calculations Every Investor Should Memorize Cap Rate Net Operating Income / Total Price of Property Example:
You want to have a cap rate that is at least as good, preferably better, than comparable buildings in the area.
And always be sure to use real numbers or your own estimates when calculating this.
Rent/Cost Monthly Rent / Total Price of Property Example: Monthly Rent: $1,000 Total Price of Property (Purchase + Rehab): $75,000 Rent/Cost = $1,000 / $75,000 = 0.0133 or a 1.33% Rent/Cost This is a great calculation for houses and sometimes small multifamily apartments.
Banks don’t like that (and you shouldn’t either).
This is a critical calculation not only when it comes to valuing a property, but also when it comes to evaluating what kind of debt or equity structure to use when purchasing it.
Don’t simply rely on this rule.
The 70% Rule Strike Price = (0.7 X After Repair Value) – Rehab Example: After Repair Value: $150,000 Rehab: $25,000 Strike Price = (0.7 X $150,000) – $25,000 = $80,000 This is another rule like the 50% rule, although I think this one is better.
Investors: What formulas do you use to analyze your deals?
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly!