Just curious what metrics people are utilizing to track their rental property investments over time. There are many different factors we can all track, but which are most relevant to you and why? From The Book on Rental Property Investing... Total Return ROI, Cap Rate and Cash on Cash ROI are mentioned quite often. In you opinion which calculations give you the best idea on the current performance of each of your properties?
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
5y
It comes down to why are you investing in the first place? We are retired so rental property is vital to provide income. I only care about cash flow. I don't even calculate CoC or Cap rate. To each their own.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
5y
The most important one to me is cash-on-cash (CoC). That tells me exactly what [cash flow] return I'm getting on the money I invest. That's really what matters the most. But I use cap rate also in the more initial phases of shopping around... kind of the first line of defense--get a quicker gauge of where a property falls on the returns spectrum. Plus it's good to know if I were to ever own it outright anyway. But that's definitely the faster starting point. While I'd love to think about ROI, I don't because the minute you start analyzing returns outside of the direct cash flow, you're immediately into speculation (ex. property value appreciation, presumed increase % of rents annually, etc.). I don't want to trick myself, or mislead myself, on my returns should any of those speculations not pan out. So I prefer to just consider any of the speculative returns as bonuses to my bottom line. Helps me in staying more conservative and not chasing a pipe dream return that may not pan out.
The most important one to me is cash-on-cash (CoC). That tells me exactly what [cash flow] return I'm getting on the money I invest. That's really what matters the most. But I use cap rate also in the more initial phases of shopping around... kind of the first line of defense--get a quicker gauge of where a property falls on the returns spectrum. Plus it's good to know if I were to ever own it outright anyway. But that's definitely the faster starting point. While I'd love to think about ROI, I don't because the minute you start analyzing returns outside of the direct cash flow, you're immediately into speculation (ex. property value appreciation, presumed increase % of rents annually, etc.). I don't want to trick myself, or mislead myself, on my returns should any of those speculations not pan out. So I prefer to just consider any of the speculative returns as bonuses to my bottom line. Helps me in staying more conservative and not chasing a pipe dream return that may not pan out.
This is great. Thanks for taking the time. I can see the value in eliminating the speculative factors. At that point cash flow is top dog and any appreciation is an unexpected bonus.
The most important one to me is cash-on-cash (CoC). That tells me exactly what [cash flow] return I'm getting on the money I invest. That's really what matters the most. But I use cap rate also in the more initial phases of shopping around... kind of the first line of defense--get a quicker gauge of where a property falls on the returns spectrum. Plus it's good to know if I were to ever own it outright anyway. But that's definitely the faster starting point. While I'd love to think about ROI, I don't because the minute you start analyzing returns outside of the direct cash flow, you're immediately into speculation (ex. property value appreciation, presumed increase % of rents annually, etc.). I don't want to trick myself, or mislead myself, on my returns should any of those speculations not pan out. So I prefer to just consider any of the speculative returns as bonuses to my bottom line. Helps me in staying more conservative and not chasing a pipe dream return that may not pan out.
This is great. Thanks for taking the time. I can see the value in eliminating the speculative factors. At that point cash flow is top dog and any appreciation is an unexpected bonus.
Exactly. That way if the speculation parts don't happen, I'm not completely up the creek without a paddle. And who doesn't love a good monetary bonus... :)