4d ago in General discussion
3 Numbers You Need to Know to Analyze Deals
Yesterday, we walked through the basics of spotting a great deal by calculating Proforma Value and understanding cash flow and resale potential. Today, let's break down the three key numbers that really matter when deciding if a deal is right for you:
Cash on Cash Return (CoC)
This measures the annual cash flow you receive compared to your investment. Think of it as the yield on your capital.
Example: If you invest $2M and your cash flow is $140,000 per year, your CoC is $140K ÷ $2M = 7%.
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This tells you how well your money is working for you in terms of yearly cash flow.
Equity Multiple (EM)
The EM measures how much your investment grows over time. An EM of 2x means your investment has doubled in value.
Example: After 5 years, if you invested $2M and earned $1M from the sale plus $700K in cash flow, your total profit is $1.7M. The EM would be ($1M + $700K + $2M) ÷ $2M = 1.85x.
We aim for a 2.5x EM minimum for apartments and 3x for hotels.
Internal Rate of Return (IRR)
The IRR is the annualized rate of return that factors in the time value of money. A 2x EM over 5 years typically translates to an 18% IRR, and we aim for 15-20% IRR for our investors.
These numbers give you a clear picture of whether a property is a good investment.
Want to learn more? Join our webinar tomorrow, October 16 at 8 PM EST to learn how to analyze apartment and hotel deals like a pro. Comment "Analyze" below and I'll give you the link to register.
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3 Numbers You Need to Know to Analyze Deals
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