Rental property investment is not just about buying properties; it’s about making smart moves. Your strategic decision determines your sustainability in the real estate investment journey. So, knowing the key metrics can make a difference and help you identify potential risks & opportunities.
Let’s explore some of the key metrics to consider as an active investor willing to invest in rental properties:
Cash Flow
Cash flow is one of the most significant numbers you’ll need to consider while assessing a rental property. It is the remaining amount after deducting expenses such as mortgage payments, insurance, maintenance, and council rates from your rental income.
Keep in mind that if the cash flow is positive, it’s a sign to invest. It shows that the rental property is earning more than the expenses, reflecting a good financial performance.
Capital Appreciation
Individuals invest in a property for long-term stability. Only looking at the monthly expenses won’t determine its true potential. Think long-term, which means capital appreciation, which is the increase in a property’s value over time.
Assess factors such as location, market conditions and infrastructure development. Hence, these are the factors that contribute to property appreciation.
Cap Rate (Capitalisation Rate)
The cap rate is a useful percentage that calculates your predicted yearly return on the property’s current market value. It is determined by dividing the property’s net operating income (NOI) by its current market value. A greater cap rate normally signifies a larger return, but it may also indicate more risk, so it’s all about striking the correct balance.
Cash-on-Cash Return
This is a metric that sounds simple and is easy to understand. It focuses on the return you’re making on the actual cash you’ve invested. It is calculated by dividing your annual cash flow by the total cash you’ve put such as legal fees, deposit and renovations.
For a smarter and clearer perspective on rental property investment, understanding these key metrics is essential. At Sapphire Estate, we’re here to help you navigate these numbers and make confident, informed decisions.
Looking to invest? Reach out to our team of experts, we’d love to help you get started!
