Internal Rate of Return vs. Cash on Cash Return in Apartment Investing

Internal Rate of Return vs. Cash on Cash Return in Apartment Investing

Whether you are looking to purchase your own multifamily property or invest passively in someone else's deal, internal rate of return (IRR) and cash on cash (CoC) are two of the most important metrics to understand and implement. While any one return metric never tells you everything you need to know, these two calculations are crucial when determining whether a potential deal will hit your investment criteria. The simpler of the two is the cash on cash return. This is defined as: Cash on Cash = Annual Dollar Income / Total Dollar Investment It is important to note that the cash on cash return typically only includes the monthly cash flows from operations and typical does not include profits from a capital event. That is, things like sale or refinance…
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Understanding NOI & Cap Rates In Commercial Real Estate

Understanding NOI & Cap Rates In Commercial Real Estate

Commercial real estate is very different than residential real estate in many respects. If you are looking to begin investing in this space, whether actively or passively, it is important to know some of the key terms. One of the most common phrases you hear when evaluating a commercial real estate deal is the net operating income, or NOI. This isĀ  important because commercial properties, unlike residential ones, do not derive their value from sales comparables. Rather, they are valued based on the income that they produce. To begin understanding NOI we must define the term. Investopedia defines it as: Net operating income equals all revenue from the property minus all reasonably necessary operating expenses. NOI is a before-tax figure which excludes principal and interest payments on loans, capital expenditures,…
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