This page provides a list of key real estate investment (REI) formulas and terms you will see in Property Tracker.
Annual Gross Rent Multiplier
The Annual Gross Rent Multiplier indicates how many years of gross rent it would take to pay off the purchase price of the property.
Formula: Purchase Price / Gross Annual Rent
Capitalization Rate
The Capitalization Rate measures the potential return on investment based on the net income the property generates relative to its purchase price.
Formula: Net Operating Income / Purchase Price × 100
Cash on Cash Return
The Cash on Cash Return shows the annual pre-tax cash flow as a percentage of the initial cash invested in the property.
Formula: Annual Cash Flow / Initial Cash Invested × 100
Cumulative Cash Invested
The Cumulative Cash Invested represents the total net out-of-pocket expenses incurred to date on the property.
Formula: Initial Cash Invested + Cumulative Cash Flow (adjusting for negative flows)
Debt Coverage Ratio
The Debt Coverage Ratio assesses whether the property’s income is sufficient to cover its debt obligations.
Formula: Net Operating Income / Total Mortgage Payment (including PMI)
Equity Share Percentage
The Equity Share Percentage represents an investor’s ownership portion in jointly owned properties.
GO Zone
GO Zone refers to the Gulf Opportunity Zone Act of 2005, which provides tax benefits for properties in areas affected by hurricanes Katrina, Rita, and Wilma, placed into service after August 27, 2005.
Internal Rate of Return (IRR)
The Internal Rate of Return compares the real estate investment’s performance to a savings account with annually compounding interest.
Formula: The interest rate that equates the present value of cash inflows and outflows over the investment period.
Monthly Gross Rent Multiplier
The Monthly Gross Rent Multiplier indicates how many months of gross rent it would take to pay off the purchase price.
Formula: Purchase Price / Gross Monthly Rent
Private Mortgage Insurance (PMI)
Private Mortgage Insurance protects the lender if the borrower defaults, typically required for loans with less than 20% down payment.
Tax Savings
Tax Savings represent the reduction in taxable income from deductions like depreciation and interest, potentially limited by passive loss rules.
Formula: Marginal Tax Rate × (Depreciation + Other Deductions – Cash Flow Adjustments)
Total Return on Investment
The Total Return on Investment measures the overall annual return including cash flow, principal reduction, and appreciation.
Formula: Annual Gross Equity Income / Initial Cash Invested × 100
Total Return on Investment Excluding Tax Savings
This is the total return excluding any benefits from tax deductions.
Formula: (Annual Gross Equity Income – Tax Savings) / Initial Cash Invested × 100
Net Operating Income (NOI)
Net Operating Income is the property’s income after deducting operating expenses, excluding financing costs.
Formula: Operating Income – Operating Expenses
Gross Equity Income (GEI)
Gross Equity Income combines cash flow, principal payments, appreciation, and sometimes inflation-induced debt destruction.
Formula: Annual Cash Flow + Principal Reduction + Appreciation + IIDD
Inflation Induced Debt Destruction® (IIDD)
Inflation Induced Debt Destruction accounts for how inflation reduces the real value of fixed-rate debt over time.
Formula: Projected Inflation Rate × Total Loan Amount
Cost Per Square Foot
Cost Per Square Foot helps compare property values based on size.
Formula: Purchase Price / Square Feet
Rent Per Square Foot
Rent Per Square Foot evaluates rental income efficiency relative to property size.
Formula: Monthly Rent / Square Feet
Loan-to-Value Ratio (LTV)
The Loan-to-Value Ratio measures the mortgage amount as a percentage of the property’s value.
Formula: Loan Amount / Property Value × 100
Cash Flow
Cash Flow is the net income generated by the property after all expenses and debt service.
Formula: Net Operating Income – Mortgage Payments
Principal Reduction
Principal Reduction is the portion of mortgage payments that reduces the loan balance.
Formula: Total Mortgage Payment – Interest Portion
Appreciation
Appreciation is the increase in the property’s market value over time.
Formula: Current Market Value – Previous Market Value
Depreciation
Depreciation is a tax deduction that accounts for the wear and tear of the property over its useful life.
Formula: Depreciable Basis / Useful Life (e.g., 27.5 years for residential)
Return on Equity
Return on Equity measures the return generated on the owner’s equity in the property.
Formula: Gross Equity Income / Equity × 100
Rent to Value Ratio
The Rent to Value Ratio compares monthly rent to the property’s purchase price.
Formula: (Monthly Rent / Purchase Price) × 100