Your First Three Metrics — Cap Rate, Cash-on-Cash, DSCR

[Gia Hermosillo]

If you're new to real estate investing, it's easy to feel lost in spreadsheets and jargon. But here's the truth: you don't need to master every formula to start making smart decisions. Three core metrics will tell you 80% of what you need to know about a deal: Cap Rate, Cash-on-Cash Return (CoC), and Debt Service Coverage Ratio (DSCR).

Let’s break them down simply:

Cap Rate = NOI ÷ Purchase Price

This is the market’s ruler. It helps you compare properties regardless of financing. A higher cap rate means higher potential return—but often higher risk or more management effort.

Cash-on-Cash Return (CoC) = Annual Cash Flow ÷ Total Cash Invested

This one’s personal. It tells you what your actual money earns each year after financing. Great for comparing how efficiently your cash is working across deals.

DSCR = NOI ÷ Debt Service (Annual Loan Payments)

This is your lender's lens. Lenders want to see this above 1.20–1.25 to feel confident your property covers its debt. A strong DSCR can mean easier financing or better terms.

Example:

A single-family home rents for $1,850/month, while a duplex rents for $1,250 × 2. With 20% down, the duplex likely shows a stronger Cash-on-Cash return because you’re pulling in more net cash flow relative to what you invested.

But the single-family might have a better DSCR because one stable tenant makes income more predictable—something lenders like.

So—which fits your goals better? The market’s ruler, your wallet’s return, or your lender’s comfort zone? The “best” deal depends on which metric matters most to you.

Action:

Run these three metrics on a property you’re analyzing today. It doesn’t need to be perfect—just practice turning data into insight.

Question:

Which number surprised you most—Cap Rate, Cash-on-Cash, or DSCR?

This is Post 2 of 24 in the 8-Week Strategy Series.

Stick around for the next post—where we’ll move from numbers to negotiation.