REAL ESTATE INVESTMENT MATH

1) 1% RULE (Quick to evaluate Income Property)

2) GRM (Gross Rent Multiplier)
3) CAP RATE (Capitalization Rate)
4) N.I.A.F. (Net Income After Financing)
5) CASH on CASH Return
6) R.O.I. Return On Investment

1% RULE:
Monthly Gross Rent ≥ 1% of Total Purchase Price
(Greater than or Equal to)

√ $2000/ Monthly ≥ $190,000 (1% is $1900)

$2000 is Greater than $1900

× $2000/ Monthly ≤ $300,000 (1% is $3000)

$2000 is Less than $3000

*Calculate on a Monthly or Annual basis

GRM: (Gross Rent Multiplier)

Total Price ÷ Total Annual Rent
$144,000 ÷ $12,000 ($1000/Mo) = 12 GRM
$300,000 ÷ $15,000 ($1250/ Mo) = 20 GRM
***LOWER GRM MEANS MORE PROFIT***
CAP Rate: (Capitalization Rate)
Net Operating Income (Anually) ÷ Total Purchase Price
(NOI = Gross Rent – Operating Expenses)
Example:

A) $10,000 (NOI) ÷ $100,000 = 10% CAP Rate

B) $5,000 (NOI) ÷ $100,000 = 5% CAP Rate

***HIGHER CAP Rate MEANS MORE PROFIT***

N.I.A.F (Net Income After Financing)

NOI (Gross Rent – Operating Expenses) – Financing Cost

$1200/Monthly - (minus) $800/Monthly (Payment)

= $400/Monthy (Before Income Tax)

CASH on CASH Return:

N.I.A.F. ÷ DOWN PAYMENT

$400/ Monthly
X 12
= $4800/ Yearly ÷ $50,000 (Down Payment)

9.6% Cash on Cash Return Annually

R.O.I. :(Return On Investment)
Example:

Purchase Price $8,000,000

Down Payment $1,600,000 (20%)
Bank Loan $6,400,000 (80%)

Bank Rate @ 2% $128,000 (Loan Cost Annually)

NOI (Net Operating Income) $520,000 (Income Annually)
PROFIT $392,000 (Before Income Tax)

R.O.I 24.5% (Return On Investment)

($392,000 ÷ $1,600,000 Actual Cash Invested)