Series · 6 articles

Understand investment returns

Articles in reading order

1. 

   Part 1

   Cap rate: what it tells you about a property before financing

   Learn what rental cap rate measures before financing, why purchase price and current value give different results, and how to compare the inputs.

2. 

   Part 2

   Cash-on-cash return: how hard is your invested cash working?

   Calculate rental cash-on-cash return with a clearly defined cash flow and invested cash, then see how CapEx, reserves and refinancing change the story.

3. 

   Part 3

   Rental ROI: define the return before trusting the percentage

   Define rental ROI by its period, costs and return components. Follow a first-year wealth bridge and avoid counting principal or appreciation twice.

4. 

   Part 4

   Return on equity: should you review the capital already tied up?

   Compare rental cash flow with current equity, distinguish gross equity from net sale proceeds, and frame forward scenarios without forecasting from history.

5. 

   Part 5

   XIRR for rental property: cash-flow dates and the exit value matter

   Use dated rental contributions and distributions to understand XIRR, test assumed net sale proceeds, and recognize input errors and multiple possible roots.

6. 

   Part 6

   Rental metrics that are easy to misread

   Read rental metrics with their cash boundaries, denominators and dates intact. Spot omitted costs, unrealized gains and double-counted principal.