Which Metrics are you using?

Question

Hey BP´s!! I wanted to hear from everyone what your choice metrics you use to calculate and determine a great real estate investment (Particularly 4 + Unit MF) CAP rate, ROI, IRR, Rent/Price Ratio, Cash on Cash Return, 50% rule, 70% rule?

Ben Leybovich · Answer

I am furious!

Actually, ARV is the most important metric in apartments as well. The mechanics of getting there are very different, but the concept is the same. Cap rate is not a metric of return. It's used as a multiplier for means other than return.

Andrew Syrios · Answer

For houses, by far our most important is ARV, or more accurately All in Cost / ARV. (We aim for 75%.) We also look at Rent to Cost and Projected (and real after owning it for a while) cash flow. With apartments, it's the cap rate. We project ROI and IRR as well, but we aren't as good as we should be. I know Ben Leybovich would be mad at me about that.

Lee Ripma · Answer

@Ryan Gravel

Yep, IRR for me as well. When I started I looked at cash on cash and got really high cash on cash doing BRRRR on small MF but it’s a lot of work. I then saw the light on value add MF and then development. My ability to achieve high IRR is going up steadily through time. I also look at a metric I call effort adjusted returns. Having a 15 IRR where all I do is wire money to people I trust is a lot more valuable to me than doing turns of hard work for a 30 IRR. Anything I now do is calibrated against effort and passivity. I do a lot of active RE investing but I love the passive returns. When you’ve done it you know how much work it is.

Mark H. Porter · Answer

We will be all over the place with our answers, but as I’m nearing retirement it is all about the cash flow for me. The others I look at, however, I do not make a decision Based on them.

Ryan Gravel · Answer

@Cal Dunagan no just looking predominately for cash flow however I am investing in MF with value add as well.

Steve Vaughan · Answer

For multi's my fave is GRM.  I can do them in seconds and know where I want to be as to location and age.

For houses, my area has a freakishly consistent assessed value, so I quickly look it up and know if it plus normal premium warrants additional consideration.  I bet assessed value is worthless a lot of places.

If figuring rehab costs in this environment of rising material costs and labor gaps, I'd add 20% to any cost estimate and at least 20% to any time est. It is ridiculously difficult for me to get subs right now.

Cal Dunagan · Answer

@Ryan Gravel

I'm don't think you stated, but are you looking to flip your investments? This is a good article regarding specific calculations you should make before you decide on the best property. Hope this helps.

Best of luck!

Andrew Syrios · Answer

Agreed. And I'm glad I was able to infuriate you as well!

Nick Peters · Answer

You don't necessarily need to pick one over the others and can get a better understanding of a deal by actually combining them. But if I had to choose only one, I would pick IRR, because it's by far the most comprehensive one.

Which Metrics are you using?

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