CHAPTER 5Measuring the Return on a Real Estate Investment

Ever since Neanderthal Man first sublet the summer cave, income-property owners have been devising methods of measuring the success of their investments. In this chapter, we’re going to look at several of these methods and discuss their usefulness to modern-day investors. We’ll start with some of the cash flow measurements that have their origins in the precomputer days and work our way along to the more sophisticated techniques, such as internal rate of return.

Payback Period, Cash-on-Cash Return, Gross Rent Multiplier, Debt Coverage Ratio

One of the oldest and simplest measures is the payback period. You can define this as the length of time required to recover your initial cash investment. ...

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