IRR and NPV

[Scott Jones]

I'm new to the site and have been able to read through a lot of discussions and articles written which I feel give good advice about analyzing deals. I love seeing others lend advice to newer investors. I see the 2% and 50% rule mentioned all over which is a good general rule to follow but by no means the end all be all. I have yet to read anything about informing new investors about IRR and NPV. In my business these numbers are the cornerstone to any deal I'm looking at. Each property is different in that I can accept a smaller or larger IRR depending on the overall risk entailed with the property, but none the less is still a main driver. Since REI (buy and hold) can be a long term investment for many (5,10,15+ years) I believe it's imperative that you factor in time value of money into any analysis. Understanding how NPV works is crucialI and I feel it should be a large factor if you move forward with a deal or not. Again the deal should be thoroughly analyzed for cost and risk factors but can really help you decide the price you should pay today for the cash stream.

My style of investing is focused on a balance between cash flow and debt repayment. I keep adequate cash reserves and really try to have my renters pay down much of the debt. I don't do 30 yr mortgages as the less interest I have to pay a bank is more cash in my pocket on the sale. Cash flow is great, but just one part of the overall equation in the deal when bringing a lender into the deal.  Just my thoughts and everyone has a different style but I'm surprised I dont hear more about these two important numbers that should be factored in. As anyone else wondered this?