Uncover Real Profits Rental Property Analysis Secrets Inside

To accurately assess a rental property's profitability, focus on key financial metrics:

1. **Cash Flow**: This is the net amount of money left after all expenses are paid. A positive cash flow indicates a profitable investment. Calculate it by subtracting total expenses (mortgage, taxes, insurance, maintenance) from the rental income.

2. **Cap Rate (Capitalization Rate)**: This metric helps you evaluate the return on investment. It's calculated by dividing the net operating income (NOI) by the property's purchase price. A higher cap rate suggests a better return.

3. **Gross Rent Multiplier (GRM)**: This ratio compares the property's price to its gross rental income. It's calculated by dividing the property's price by the annual rental income. A lower GRM indicates a potentially better investment.

4. **Return on Investment (ROI)**: ROI measures the profitability of your investment. It's calculated by dividing the net profit by the total investment cost. A higher ROI signifies a more profitable investment.

According to recent studies, properties with a cap rate of 8% or higher are generally considered good investments¹.