The Top 2 Metrics You Need to Know in Any Real Estate Investing Deal

The Top 2 Metrics You Need to Know in Any Real Estate Investing Deal

2 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Experience
Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

Press
Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

Follow
YouTube
Instagram @beardybrandon
Open Door Capital

Read More

Join for free and get unlimited access, free digital downloads, and tools to analyze real estate.

When considering real estate deals, I care about two different metrics more than anything:

  1. Cash-on-cash return
  2. Total cash flow

So, those two things I care about more than almost anything else, right. Which makes sense. Cash-on-cash return is what percentage of my investment am I making back every single year in profit from the cash flow? And cash flow is like a dollar amount: How much per month am I actually making?

Related: Introduction to Real Estate Investment Deal Analysis

Related: 6 Metrics You Must Know to Identify Great Investments

What’s a Good Cash-on-Cash Return? What’s Good Cash Flow?

Now, I oftentimes say that for cash-and-cash return, I aim for 10-12%. That’s what I want for cash-and-cash return. And I aim for between $100-200 a month in cash flow per unit.

A question I got recently on a webinar was: What if the actual dollar amount looked pretty good—$200 on a single-family house—but it was only getting a 5% return… would I do that? Great question.

So, here’s how I look at that. If I’m just getting started, trying to buy my very first deal, and only getting a 5% return—if I know that I would have more money where that came from—I would probably do it just to start building momentum. That’s so long as I was really confident in that 5% number. Because I believe that in the beginning, momentum is more important than your actual return on a single investment—the knowledge and experience you gain are invaluable.

However, that said, I would normally say the cash-and-cash return number—the percentage—is more important than your dollar amount. Why am I even looking at two numbers to being with? That’s because without using both those metrics, you can manipulate it.

note-investing-question

Related: A Guide to Internal Rate of Return & Other Must-Know Financial Metrics

Beware of Manipulating Metrics

For example, what if I had a property that was making me $200 per month? It fits my metric, right? But say it cost me $10 million to buy that property. That would be a horrible deal! It would be a super low—like a 0.0001%—cash-on-cash return.

Now, on the other hand, what if I had a property that was giving me a 50% return on investment? Whoa, that’s really good! But that just might mean I put $2 into the deal because it was almost a no-money-down deal. And I made back only $1 the entire year. I was making back like $0.08 a month. That’s a horrible deal, right?

That’s why I want both these things now. Generally speaking, I care more about my percentage return than I do my cash-flow number; however, I would like to have both those hit my metrics. But again, I would be willing—on an early deal, just to build momentum—to go a little bit lower than that.

I hope that helps!

Questions? Comments? 

Join the discussion below!