IRR, CoCR, ROI, ROE, something else?
Obviously different metrics are more/less applicable to different strategies. Something I am considering right now is how to use return on equity (ROE) to determine the tipping point when it becomes more advantageous to sell than hold. If I'm getting an 8% ROE I'm gonna hold, but if it drops to 4% I gotta think that selling is the better decision at that point.
This also applies to the debate over appreciation vs. cash flow markets. The ROE is going to be way higher in cash flow markets, which will favor long-term holding, while the low ROE in appreciation markets favors value-add and flipping.
In invest mostly in cash flow markets with lower (~3%) appreciation. I judge all properties by CoCR (cash on cash return) including equity: (cash flow + appreciation + principal pay down)/initial investment. I find this is simple to explain to partners and translates well to other markets.
I use ROE to determine my return on my SFRs. It gives me a real-time picture of what my capital is earning as the property value changes over time.
I haven't bought anything since discovering BP and finding the calculators. Previously I just had my financial planner tell me yes or no. But now I'm looking at cash flow and cash on cash ROI (via the Rental calculator) to help me determine what I should consider purchasing. My financial planner is very proud. lol
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