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Definitions provided by www.RentalValuator.com
Break-Even Ratio Metric often used by commercial lenders to measure how vulnerable a property is to defaulting on its debt if rental income were to decline.
Cash on Cash Return Property’s cashflow in a given year divided by the total amount of initial investment (plus any additional capital expenditures not financed). Expressed as a percentage. Can be looked at on a Before- and After-Tax basis. This calculation does not take in account any time value of money, so is mostly used for to measure cashflow in the first year.
Capitalization Rate (Cap Rate) Net Operating Income (NOI) divided by the Purchase Price or Value. Expressed as a percentage. This is one of the most common metrics for measuring the property’s performance before taking financing into account. A Cap Rate of 10%, for example, means that if you were to purchase that property for all cash, you would earn 10% return on your investment.
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