Understanding Investment Property Metrics

This tool helps analyze the financial viability of a mortgage for an income-producing investment property. Here are the key metrics:

• Loan-to-Value (LTV) Ratio: (Loan Amount / Property Purchase Price) * 100%. Lenders use this to assess risk; lower LTV (higher down payment) is less risky for the lender. Investment properties often require lower LTVs (higher down payments) than primary residences.
• Total Initial Cash Investment: Down Payment + Closing Costs. The total cash you need out-of-pocket to acquire the property.
• Monthly P&I: The fixed monthly payment for Principal and Interest on the loan.
• Annual Debt Service: Total P&I payments made over a year (Monthly P&I * 12).
• Effective Gross Income (EGI): Gross Annual Rental Income - (Gross Annual Rental Income * Vacancy Rate %) + Other Annual Income. The realistic total income you expect after accounting for vacancies.
• Total Operating Expenses (OpEx): Sum of all annual expenses to run the property, *excluding* loan payments and CapEx. Includes: Property Taxes, Insurance, Repairs & Maintenance, Property Management, Utilities (owner-paid), HOA Fees, etc.
• Net Operating Income (NOI): The property's profitability from its operations, before considering financing costs or income taxes.
  NOI = Effective Gross Income - Total Operating Expenses
• Debt Service Coverage Ratio (DSCR): Measures the property's ability to cover its mortgage payments from its operational income. Lenders look closely at this.
  DSCR = Net Operating Income / Annual Debt Service
  A DSCR above 1 means NOI is more than debt service. Lenders often require DSCR of 1.20x, 1.25x, or higher for investment properties.
• Annual CapEx Reserve: Funds set aside annually for major, infrequent capital expenditures (e.g., roof replacement, HVAC, major appliance replacement). Not an operating expense, but crucial for long-term financial planning and accurate cash flow assessment.
• Annual Pre-Tax Cash Flow: The actual cash profit you make from the property in a year after paying all operating expenses, the mortgage, and setting aside CapEx reserves, but before income taxes.
  Cash Flow = NOI - Annual Debt Service - Annual CapEx Reserve
• Monthly Pre-Tax Cash Flow: Annual Pre-Tax Cash Flow / 12.
• Cash-on-Cash Return (CoC ROI): Measures the annual pre-tax cash flow relative to your total initial cash invested. A key metric for leveraged real estate investors.
  CoC ROI (%) = (Annual Pre-Tax Cash Flow / Total Initial Cash Investment) * 100%

Risks in Leveraged Real Estate:

• Vacancy Risk: Higher than expected vacancies reduce income.
• Unexpected Repairs: Can significantly eat into cash flow if reserves are insufficient.
• Tenant Management Issues: Can be time-consuming or costly if using property management.
• Market Downturns: Can affect rental demand and property values.
• Interest Rate Risk: If the mortgage is variable (this tool assumes fixed rate for simplicity) or if refinancing later.
• Liquidity: Real estate is generally an illiquid investment.

This calculator provides estimates based on YOUR inputs. Real estate investing involves careful due diligence for your specific market (e.g., rental rates, property taxes, and expenses in Kolkata, India, or any other location). It is not financial advice. Always consult with financial, tax, and real estate professionals.