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Analytics
The Metrics
Here are the 11 Financial Metrics that PropVest IQ uses (12 including location) to help identify properties that are worth taking a deeper dive. The Financial Metrics Score is calculated as 100%, but represents 70% of a properties overall score. The Location Score is calculated as 100%, but but represents 30% of a properties overall score.
Debt Coverage Ratio (DCR) is a metric that compares a property’s income to its debt obligations. The Debt Coverage Ratio measures the property’s ability to generate enough income to cover its debt payments. A DCR over 1 indicates better financial health, while a lower DCR suggests that the property might struggle to meet its loan obligations.
In real estate, cash flow measures the net income generated by a property after accounting for all income and expenses, including mortgage payments. Positive cash flow ensures the investment covers operating costs and debt service, while negative cash flow indicates the property is costing more than it earns.
NOI is a key metric used to evaluate the profitability of a rental property. It measures the total income generated by the property after deducting all operating expenses, but before accounting for financing costs (like mortgage payments) and taxes. NOI is a crucial metric for evaluating a property’s financial performance and is often used in cap rate calculations.
The IRR measures the annualized return on an investment, factoring in both cash flows and the time value of money. It tells investors what percentage rate they are effectively earning on their investment over time. A higher IRR indicates a more profitable investment. IRR is widely used in real estate because it considers not only rental income but also property appreciation, refinancing events, and the eventual sale of the property.
Cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property. It measures the annual pre-tax cash flow compared to the total amount of cash invested. Unlike return on investment or ROI, which measures return over an entire holding period, cash-on-cash is the return over a specific period of time, usually 1 year. The term "cash-on-cash" refers to the rate of return on the entire amount of cash invested. Evaluates cash income relative to the initial cash investment.
The capitalization rate (cap rate) is a profitability metric used in real estate. It is calculated by dividing a property's net operating income by its current market value. The cap rate is expressed as a percentage and provides an estimation of an investor's potential return on a real estate investment. It is most useful for comparing the relative value of similar real estate investments. Estimates the property's potential return based on income. It provides a quick way to assess a property’s profitability and compare it to other investments.
Gross Operating Income (GOI) measures the total rental income a property generates before accounting for operating expenses. It reflects the potential income a property can produce if it’s fully occupied and rents are collected as expected. GOI may also include additional income streams such as parking fees, laundry services, or storage rentals, minus vacancy losses
Gross rental yield measures the annual rental income generated by a property as a percentage of its total purchase price. It provides a quick snapshot of a property's potential return before accounting for expenses.
Net rental yield measures the annual rental income after deducting operating expenses, expressed as a percentage of the property’s total purchase cost. This metric offers a clearer picture of profitability by factoring in costs like property management fees, maintenance, insurance, and property taxes.
The Operating Expense Ratio measures the efficiency of a property’s management by showing how much of the gross rental income is spent on operating expenses. It provides insight into the profitability and management effectiveness of a rental property. Evaluates the ratio of operating expenses to income.
Measures the portion of the property financed through a loan. The LTV ratio measures the amount of a loan relative to the appraised value or purchase price of the property. It is used by lenders to assess risk. A higher LTV indicates that a borrower is financing a larger portion of the property, which may increase the risk of default.
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Why are they Important
We don’t use just one or two metrics. We take analytics and analysis to a whole other level. Where gut feelings and instinct take a back seat to math and science.
They are important, because these are the metrics that professional lenders use everyday. PropVest weights the metrics based on their consideration lenders place on them. Below you’ll see the justification of the weightings:
Debt Coverage Ratio: Weighting = 13.46%
Highest weight because lenders use this as the primary risk metric; ensures sustainability and bankability.
Cash Flow: Weighting = 12.02%
Critical for liquidity and investor income; determines whether the property supports itself month to month.
Net Operating Income: Weighting = 12.02%
Reflects core profitability and underpins DCR and Cap Rate calculations.
Internal Rate of Return: Weighting = 11.06%
Balances short-term gains with long-term performance; crucial for capital planning.
Cash-on-Cash Return: Weighting = 10.1%
Measures efficiency of invested capital; helps compare leverage strategies.
Capitalization Rate: Weighting = 9.62%
Useful for market comparison and valuation; slightly lower weight since it doesn’t account for financing or growth.
Gross Operating Income: Weighting = 8.65%
Indicates earning potential; moderate weight since it doesn’t reflect cost efficiency.
Gross Rental Yield: Weighting = 6.73%
Provides a quick screening metric; less precise but useful for early comparisons.
Net Rental Yield: Weighting = 6.73%
Reflects actual yield; overlaps with NOI and Cap Rate, so given mid-tier weight to avoid redundancy.
Operating Expense Ratio: Weighting = 5.29%
Indicates efficiency of operations; lower weight because it’s diagnostic, not outcome-defining.
Loan-to-Value Ratio: Weighting = 4.32%
Shows leverage and risk exposure; important but least directly tied to performance outcomes.