In real estate investing, speed and accuracy are paramount. The ability to quickly and effectively analyze a potential deal can be the difference between a profitable project and a costly mistake. This quick reference guide from Harvey Capital Funding provides the essential formulas and metrics you need to evaluate investment properties in the Richmond, Virginia market and beyond. Keep these tools handy to make informed decisions and confident offers.
For a more hands-on approach, be sure to explore our interactive Investor Calculators.
(ARV x 0.70) - Repairs = MAO
A guiding principle for flippers, ensuring a buffer for profit and unexpected costs by offering no more than 70% of the After Repair Value, less renovation expenses.
ARV - Costs - Profit = MAO
The most precise calculation for your offer. It accounts for the ARV, all fixed/variable costs (closing, holding), repair estimates, and your desired profit margin.
NOI / Market Value = Cap Rate
The essential metric for rental investors, representing the unlevered annual return on a property. A higher cap rate often signals a more profitable investment.
Annual Cash Flow / Cash Invested = CoC
Measures the return on your actual cash investment, including the down payment and closing costs. It shows how effectively your capital is generating income.
NOI / Total Debt Service = DSCR
A key ratio used by lenders to assess risk. It shows if a property’s income is sufficient to cover its mortgage payments. Lenders typically require a DSCR of 1.25x or more.
Market Value / Gross Annual Rent = GRM
A quick comparison tool for similar properties in an area. A lower GRM suggests a better value relative to the income it generates.
Hard Money Loan Terms
- LTV/LTC: Up to 90% of purchase price & 100% of renovation costs.
- Interest Rates: Higher than conventional, reflecting short-term risk.
- Origination Points: Typically 1-3% of the total loan amount.
- Loan Term: Short-term financing, usually 6-24 months.
- Closing Time: Exceptionally fast, often in 7-14 days.
Closing Cost Estimates
Budgeting for closing costs is crucial. As a general rule, expect to pay:
- Buyer Closing Costs: 2-5% of the purchase price.
- Seller Closing Costs: 6-10% of the sales price (includes commissions).