The 4 most common metrics used to measure a deal

Passive Real Estate Strategies: Investing in Syndications and Funds

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Key Points:

1. [0:34-01:40] Cash on Cash Return:

a. Measures rental income against invested capital.

b. Determines the percentage of return from net rental income.

c. Investors seek an average of at least 5%, varying with strategies and property types.
2.[01:48-3:00]Average Annual Return:

a. Calculates overall return over a specified investment period.

b. Combines cash flow, sale proceeds, and other income.

c. Aiming for a minimum of 15% average annual return, depending on investment duration.
3.[3:14-4:00]Equity Multiple:

a. Measures how much an investment multiplies the initial equity.

b. Reflects overall profit generated from the investment.

c. Aim for around 2.0 equity multiple, adjusting for deal length and timing.
4. [4:14-5:00] Internal Rate of Return (IRR):

a. Complex formula incorporating the time value of money.

b. Prioritizes quicker cash returns due to inflation's impact on future cash value.

c. Target around 15% IRR, considering investor preferences and investment horizons.
5.[5:14-7:00] Individual Investment Goals:

a. Different investors emphasize various metrics based on their objectives.

b. Some prioritize cash flow and steady returns, while others focus on higher IRR and equity multiples.

c. Understanding your investment strategy helps determine which metric is most crucial.

The episode delves into essential metrics for evaluating real estate deals, including cash on cash return, average annual return, equity multiple, and internal rate of return (IRR). Each metric offers insights into different aspects of an investment, catering to diverse investor goals and strategies.