7 Essential Metrics for Analyzing Property Investments
Smart real estate investors evaluate deals using quantitative metrics rather than emotions. These data points separate high-potential investments from money pits.
1. Capitalization Rate (Cap Rate)
Calculation: (Net Operating Income / Property Price) x 100
- 6-8% = Average market
- 8-10% = Strong investment
- 10%+ = High risk/reward
Example: ₹50,000 monthly rent – ₹15,000 expenses = ₹35,000 NOI
(₹35,000 x 12) / ₹50,00,000 price = 8.4% cap rate
2. Cash-on-Cash Return
Measures: Annual pre-tax cash flow relative to cash invested
Formula: (Annual Cash Flow / Total Cash Invested) x 100
Good benchmark: 12%+ indicates strong cash flow
3. Gross Rent Multiplier (GRM)
Calculation: Property Price / Gross Annual Rent
- Below 12 = Potential bargain
- 12-15 = Market average
- 15+ = Overpriced
4. Debt Service Coverage Ratio (DSCR)
Lenders require: 1.25+ for investment loans
Formula: Net Operating Income / Annual Debt Payments
1.0 means breaking even; 1.5 provides comfortable cushion
| Metric | Good Range | Quick Calculation |
|---|---|---|
| Price-to-Rent Ratio | Under 18 | Price ÷ Annual Rent |
| Vacancy Rate | Below 5% | Vacant Units ÷ Total Units |
| Appreciation Rate | 4%+ historically | (Current Value – Purchase Price) ÷ Years Held |
Practical Analysis Tips
- Calculate all metrics for 3+ comparable properties
- Weight metrics based on strategy (cash flow vs appreciation)
- Re-evaluate every 6 months during holding period
Balanced Evaluation Approach
Prioritize metrics based on your goals:
- Income Focus: Cap Rate, Cash-on-Cash, DSCR
- Appreciation Focus: GRM, Price-to-Rent, Local Growth Rates
Properties scoring well across 5+ metrics typically deliver 18-22% annualized returns.