The 5 Metrics that Matter Most to Real Estate Investors
When it comes to real estate investing, numbers matter. In fact knowing the numbers and tracking your data is what sets you up for success as an investor. But why are numbers so important in real estate investing?
To put it most simply, this is because not all real estate investments are equal. There are many different factors that can affect your ROI such as repair cost, purchase price, neighborhood etc.
So how do you go about making the right choices and investments?
This is where metrics come in. Certain metrics and KPI’s are designed specifically for the real estate investor so they can easily view whether or not they’ll be able to recoup enough money at a low enough risk so that the investment makes sense.
What are the most important metrics to track? In this article we’ll go over the top 5 metrics used by real estate investors.
Capitalization rates, most commonly referred to as cap rates are the most common metric used by investors. Cap rates estimate your potential return on your property, making them a very important asset to investors. As cap rates go up, the return on your investment goes down.
Closely related to cap rates is internal rate of return (IRR). This metric is used to measure a project’s profitability. Understanding your IRR means knowing the true potential of your investment. This metric includes your cash flow, investment costs and property sale.
Do you know how much capital it takes to run a property? You can with a gross operating income metric. A GOI will remove estimated losses from tenant vacancies.
Cash on Cash Return
CCR is way to measure your investments performance. The rate of return measures the annual pre-tax cash flow divided by the total cash invested therefore you are able to compare investments easily and make the right decisions.
Loan to value ratio is extremely important for evaluating risks. Ideally you want your LTV to be as low as possible. The higher your LTV the more risk there is associated with your loan. Properly navigating and referencing your LTV will help keep you safe while making investments.
Tracking these metrics and knowing the data is crucial to your success as a real estate investor. Numbers don’t lie, and knowing your investments profitability and performance can push you ahead of your competitors because you’re able to make the right decisions fast.
But how are you tracking this data? Utilizing a stable CRM software like Left Main REI can provide you clarity in times of unknown and the ability to grow and scale your business. With Left Main, you can have a 30,000-foot view of your company at your fingertips. Take advantage of our Leads, Acquisitions, Marketing, Disposition and Sales Dashboards to track and understand your data and incorporate free integrations to automate your business. To learn more about all you can accomplish, visit our website at leftmainrei.co and book a free demo with our team.