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Most new real estate investors get excited about a property's listing price and monthly rent. That's how you lose money.
Here are the 3 numbers that actually matter:
1. Cap Rate (Target: 6-10%)
Net Operating Income ÷ Purchase Price. Below 6%? You're paying a premium for appreciation speculation. Above 10%? Something's probably wrong — dig deeper.
2. Cash-on-Cash Return (Target: 8%+)
Annual pre-tax cash flow ÷ total cash invested. This tells you what your actual money is earning. A "cheap" property with a bad cash-on-cash return is still a bad deal.
3. Debt Service Coverage Ratio (Target: 1.25+)
Net Operating Income ÷ Annual Debt Payments. Below 1.0 means you're losing money every month. Banks want 1.25+ for a reason.
Run these three numbers on every deal before you even visit the property. You'll eliminate 80% of bad investments in 5 minutes.
We break down real deals with these exact metrics every week inside Cornerstone Investments. If you're serious about building a real estate portfolio the right way, join the free tier and see for yourself.