# - Real Estate 101 - Real Estate Metrics

Jan 10, 2017

## Real Estate

• Real Estate Metrics

LearnCRE.comReal Estate Finance 101

• LearnCRE.com

Real Estate Metrics

+ Why?

+ Examples

YOC Yield on Cost = Stabilized Rent / TPC

ROC Return on Cost = (End Value-TPC) / TPC

IRR Internal Rate of Return

Dev IRR IRR over the development period (end value at dev end)

10 Year IRR IRR over 10 year period (or 5 or 7) (end value at period end)

EM - Equity Multiple = Equity In / Equity Out (ratio)

GRM Gross Rent Multiplier = PP or TPC / Rent (similar to P/E ratio)

Cash on Cash Return = (Equity In - Equity Out) / Equity Out (%)

Cash Yield / Cash on Cash Yield = NOI-Debt Service / Equity Outlay

DSCR NOI / Debt Payment

Debt Yield NOI / Loan Amount

LTV Loan to Value = Loan / Value

Passing Yield Contracted first year NOI / Property Value

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Real Estate Metrics

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At Acquisition Cash Flow (pa) Cost/Value Comment

Total 7.0 100.0

Debt 3.0 60.0 5% interest rate, 5 year term, I/O

Equity 4.0 40.0

At Disposition Cash Flow (pa) Cost/Value Comment

Total 8.1 115.9 At same yield, 3% rent growth

Debt 3.0 60.0 Pay off loan with proceeds

Equity 5.1 55.9

1 2 3 4 5 6

Acq -100.0

Rent 7.0 7.2 7.4 7.6 7.9 8.11

Disp 115.9

Total -93.0 7.2 7.4 7.6 123.8

Loan 60.0 -60.0

DS -3.0 -3.0 -3.0 -3.0 -3.0

Equity -36.0 4.2 4.4 4.6 60.8

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Real Estate Metrics

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Unlevered Returns Value Math Definition

YOC 7.0% =7.0/100.0 Yield on Cost

GRM 14.3 =100.0/7.0 Gross Rent Multiplier

ROC 15.9% =(115.9-100.0)/100.0 Return On Cost

IRR 13% =IRR(cashflows) Internal Rate of Return

Levered Returns Value Math Definition

EM 1.40 =55.9/40.0 Equity Multiple

Cash on Cash Return 40% =(55.9-40.0)/40.0

Cash on Cash Yield 10% =4.0/40.0

Levered IRR 22% =IRR(cashflows post debt)

Bank Returns Value Math Definition

DSCR 2.3 =7.0/3.0 Debt Service Coverage Ratio

Debt Yield 12% =7.0/60

LTV 60% =60/100 Loan To Value

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YOC Yield on Cost

+ Market Rent / Total Project Costs

+ What does it mean?

+ Why important?

+ Stabilized Rent over

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ROC Return on Cost

+ ROC = Profit / Total Project Cost

+ Profit = End Value Total Project Cost

+ What does it mean?

+ Why important?

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10 Year IRR vs Dev. IRR

+ Internal Rate of Return

The discount rate that sets estimated discounted cash flows equal to the initial investment

It is easy to figure out B1 returns by handhow about B3?

IRR helps here

+ 10 Year IRR

Total IRR over 10 year period

Cash out phase

Cash in phase

End Value Phase

+ Development IRR

IRR from start to Development End

Cash out Phase

End Value Phase

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Tell me What is wrong with this OM?

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Cap Rate

+ Capitalization rate

+ Market Rent / End Value or = Stabilized Rent / Purchase Price

+ Yield forever or IRR as time approaches infinity

+ Risk free rate plus real estate risk

+ How does this differ from passing yield?

+ Risks:

Different property types

Different locales

Different property quality

Different tenant profile

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