Metrics for Deal Analysis

Let's talk about every new investor's favorite topic: metrics for deal analysis.

Everyone runs their numbers differently, but the basic pillars are the same: you are measuring your up-front investment against your expenses to determine at least two major metrics: cash-on-cash (CoC) return and cash flow.

Cash-on-cash return is your rate of return on the money you invested in the deal. To calculate it, divide your total annual cash flow by your total initial investment. 

Cash flow is the money you make every month after all expenses have been accounted for. You can calculate it by subtracting your debt payments from your net operating income.  

Investors ask me all the time what their CoC returns and cash flow goals should be. My answer is always the same: It is different for everyone! Your metrics should be made to suit YOUR portfolio goals and your timeline.

That being said, at a very basic level, most investors look for AT LEAST 9-10% CoC return in their deals. I like to compare it to the stock market. If the stock market averages ~10% per year, my goal is to beat 10% with every property I own. Again, this is just a benchmark—do what works best for you. 

If you would like help identifying your deal criteria, I am available for one-on-one coaching.