What deal metrics are most important to you?

[Justice Bowers]

Hi everyone,

I’m a Real Estate Advisor for a company that provides turn-key investment properties for investors who want to own assets but prefer to avoid the day-to-day management. I also actively invest in real estate myself, and I talk with investors regularly about how they evaluate deals.

Out of curiosity, what key metrics do you use to decide whether a deal is worth pursuing? Do you prioritize cash-on-cash return, equity buildup, cap rate, monthly cash flow, or something else entirely? 

I'd love to hear what makes or breaks a deal for you!

[David Krulac]

I look at cash flow, purchase price and prospects of appreciation. Another aspect would be financing terms. In the real world, its hard if not impossible to get all 4 aspects on a single deal. For beginning investors the financing is critical, but more experienced buyers rely less on financing because they have other avenues of getting the funds to close. Bringing in a partner, second mortgages, line of credit are sources of additional funding to close.  I might buy 1 property that has cash flow, another that has a great purchase price, another that has great appreciation prospects and yet another with great financing terms.  Getting more than 1 aspect on 1 property is a bonus.  Recent purchases were financed at 4.25% fixed for 10 years, and 4.75% fixed for 30 years.  Those have cash flow allbeit small, and appreciation prospects.  Other recent purchases were at 66% of appraisal, appreciation pospects but terrible financing.  It was a tradeoff, I was willing to make that I could not have made when starting out with no funds.