This is the return on investment divided by the number of years the investment is held.
Capitalization Rate (Cap Rate)
A rate of return on a real estate investment property based on the expected income that the property will generate. Capitalization rate is used to estimate the investor’s potential return on his or her investment. This is done by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property.
Remaining liquid profit after deducting operating expenses and any debt service payments.
Cash-on-Cash (CoC) Returns
A rate of return calculated by dividing the cash flow being produced by a property by the initial cash investment.
Debt Service Coverage Ratio
The DSCR is the the ratio commercial mortgage lenders use to evaluate and qualify a deal for financing. The DSCR measures how much cash flow will be available to cover debt service. A DSCR ratio of 1 means the cash flow should cover the debt payments.
Internal Rate of Return (IRR)
The rate of return that would make the present value of future cash flows plus the final market value of an investment opportunity equal the current market price of the investment or opportunity. The higher a project’s internal rate of return, the more desirable it is to undertake the project.
Net Operating Income (NOI)
The NOI of a property is calculated by adding up all of the incoming revenue from a property and subtracting the operating expenses.
Preferred Return (Pref)
Investors with preferred shares or preferred returns receive their distributions and returns up to an agreed upon percentage before the sponsor. This holds them accountable and ensures interests are aligned.
Return On Equity (ROE)
The ROE is the amount of net income returned as a percentage of shareholders equity.