Key investment ratios and their relationship to one another

[Lorenz Cornelis]

Hi All!

I am currently setting up my investment dashboard to track my portfolio's performance (buy-and-hold) but am also looking into better understanding the underlying dynamics between the various return metrics. My question has two components:

Part One: Which metrics to include in the executive output:

The current shortlist/ratio's that will make it on my "executive output" are:

1. Capitalization ratio
2. Cash-on-Cash ratio
3. Return on equity (incl. loan paydown, cashflow and appreciation)
4. Debt servicing ratio

Is there any metric I am forgetting here to get a first good impression of the property? Any suggestions?

Part Two: Underlying dynamics:

I am trying to better understand the various effects between our "selection". For example: a high cash-on-cash ratio is usually good news. However, it could also be that the property is "underlevered" and therefore has a lower overall return on equity (+ the opportunity cost of only being able to acquire one property). Another example could be a high debt servicing ratio (e.g. close to 100%) which could mean that your rental income is too low OR you have a short-term loan (which then again affects your return on equity from loan paydown and risk profile).

Do you have any further points or ideas? I would love to hear about it!

Warm regards from Switzerland,

Lorenz

[Joe Villeneuve]

You're over complicating it all by overanalyzing with the use of useless numbers.

Focus on numbers with $$$$ in front, and don't use numbers with %%%% behind them.  Percentages tell you nothing of true value, and they will lie to you in the process.

Also, paying off a mortgage using your own money (cash) is foolish and counterproductive. In simple terms, the entire cost to the REI is only what cash that comes out of their pockets. The rest comes from the tenant (rent) as long as you have positive Cash Flow. Profits come after you have recovered ALL of your cost, so the less that comes out of your pocket, the less the property cost you, and the quicker you get to making a profit.