Learn How to Analyze Property for Profitability
How Do You Analyze an Investment Property?
Want to see if a potential investment property is actually going to increase your overall wealth? When it comes to analyzing a property for profitability, you need to ask yourself these questions:
What is the
Is it a high
How does its
We can answer these questions by looking at 3 different values:
- Capitalization rate (cap rate)
- Return on investment (ROI)
- Gross rental multiplier(GRM)
Note: Although all of these values are useful for analyzing the profitability of an investment property, the cap rate is the most common means of determining if a property is a good investment
Cap rate measures the risk of an investment. The greater the cap rate, the lower the risk.
Cap rate is calculated by dividing the net operating income b the market value of the
ROI measures the amount of profit. The greater the Roi, the investment. ROI is calculated by subtracting the invested amount from the returned amount and dividing by the invested amount.
GRM measures the property income value. The lower the GRM, the lower the investment risk. GRM is calculated by dividing the property price by the grass rental income.