Key Indicators in Analyzing Rental Properties

[Paul Veronis]

Hello BP Community.

I am trying to get better at analyzing rental properties so that I can buy my first investment property. I was curious what other investors consider to be a good GRM, Cap Rate, and Cash on Cash Return? When I was looking online, different sources said that a good GRM was between 4 to 7, a good Cap Rate was between 8% to 12%, and a good cash on cash return was between 8% to 12%. Would you agree with these numbers, and if not what do you consider to be a good estimate for these indicators?

Also, what other key indicators do you use to figure out if a rental property would be a good investment?

Thank you.

[Jaron Walling]

@Paul Veronis Before buying an investment and looking at percentages from a calculation you preform I think it's important to understand the market and a strategy. As investors we can have all the spread sheets and calculations in the world but if we're not comparing apples to apples what's the point? 

For single family cap rate means nothing. It's based on comps. Cap rate for multi-family is important because it shifts over time and determine value. Predicting future cap rates is an art and one of the driving forces behind syndication deals, funds, and new construction going on in this market. Cap Rate/NOI= $____

GRM is a quick calculation to determine how fast a property pays for it's self. It's a starting point but it doesn't factor in changing expenses. The lower the number the better but for appreciation markets (San Fran, LA, NYC, Miami) it's kind of useless.

In my opinion you have to set a minimum floor. What's the minimum COC you're willing to make? For me it's $150 dollars per month because that's what I'm hitting with my rentals. It's roughly a 12.5% ROI but getting my money back faster with cash-flow or value add and future refinancing is all that matters.