Investor lingo 101 – Top 10 Investor Terms You Should Know

We’ve all heard the following terms: Cap Rate, GSI, NOI and although some of us know these terms inside and out a lot of us aren’t so familiar. To help make investing a breeze, we’ve put together the Top 10 Investing Terms and broken them down.

  1. Cape Rate – Explained these are an awesome way to quickly calculate the income potential of an investment property. This popular return equation is the ratio between a rental properties value and it’s net operating income.
  2. Gross Scheduled Income (GSI) – This term gives you an idea of what the annual rental income generated could be if your property was occupied 100% of the time.
  3. Gross Operating Income (GOI) – This term takes into consideration what your gross scheduled income could be, less any vacancies, credit loss + any income derived from other sources such as signage or coin-operated laundry.
  4. Operating Expenses – Operating expenses essentially entail the cost of keeping a property operational. These include but are not limited to taxes, insurance, and utilities.
  5. Net Operating Income (NOI) – NOI is essentially the properties income AFTER expenses, credit loss and vacancies are covered. This could quite possibly be deemed one of the most important calculations when it comes to any investment because it represents the income stream that determines the properties market value.
  6. Gross Rent Multiplier (GRM) – GRM is a simple method used for calculating the approximate value of an income producing commercial property based on the property’s gross rental income. Here’s the formula for further reference:                                                                                                            Property Value = Annual Gross Rents X Gross Rent Multiplier (GRM)
    $640,000 = $80,000 X 8 (GRM)
  7. Debt Coverage Ratio (DCR) – The DCR is a number that expresses the number of times your annual net operating income exceeds debts serviced. NOI/Debt Service = Debt Coverage Ratio
  8. Break Even Ratio (BER) – This is a ratio primarily used by lenders to aid in evaluating the amount of money going out as opposed to money coming in.
  9. Loan to Value – The LTV ratio represents the amount of the mortgage lien divided by the appraised value of the property as a percentage. For example, a borrower taking on a $92,500 mortgage to purchase a home appraised at $100,000 would have an LTV ratio of 92.50% (92,500/100,000).
  10. Operating Expense Ratio – This is the ratio between your real estate investments total operating expenses compared to it’s gross operating income as a dollar amount.

For all your Real Estate Needs, The Doyle Team has got you covered.

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