11/3/12: Sharpen Your Pencial and Do the Math – Utilizing the Formulas of Real Estate Investing

“Do the math and the math will tell you what to do!”

Sounds good!  But how?

That’s the topic of this episode of The Real Estate Guys™s radio show!

In the studio behind the powerful platinum plated microphones:

  • Your calculating host, Robert Helms
  • Your full-figured co-host, Russell Gray

We know.  Math isn’t sexy.  It isn’t even real fun. And it sure doesn’t make for compelling radio.

Nonetheless, knowing how to do proper financial analysis is a fundamental, essential, mission critical survival skill for every income property investor big or small.  And we’d be remiss in our duties as world class real estate investment talk radio show hosts if we didn’t dedicate at least one show to this important topic.

So grab some refreshments (Red Bull, coffee, 5 hour energy, Jolt, etc) and grab your calculator, note pad and pencil and get ready for some (yawn….) exciting, useful, practical content!

In this episode, we identify 7 financial formulas which are essential for everyone who invests in income property, whether it’s single family homes, apartment buildings, strip malls, mobile home parks, office or industrial space, or even a parking lot.  If it generates cash flow, these are formulas you need to know:

  1.     Gross Rent Multiplier (GRM)
  2.     Net Operating Income (NOI)
  3.     Capitalization Rate (Cap Rate)
  4.     Before Tax Cash Flow (BTCF)
  5.     After Tax Cash Flow (ATCF)
  6.     Cash on Cash Return (ROI)
  7.     Internal Rate of Return (IRR), or as we like to call it, Total Return

We won’t clog the blog with the formulas and details.  If you want to see all that in written format, check out Chapter 9 of Equity Happens, our amazing and highly rated book on real estate investing (that was a shameless self-promotion, if you didn’t catch it).

But before you play hooky and skip this episode, let us give you a few reasons you want to pay attention.

When you know how to do these formulas and interpret the results, you can tell if it makes sense to borrow to acquire the property.  You can tell if a market is over-heated or still has some upside.  You can effectively compare the financial return of any property compared to any other property as well as any other kind of investment.  And you can tell if someone is feeding you a big bag of cow chips when they hand you their pro-forma and tout their amazing “cash on cash” return.

So guzzle down some financial stimulus, and listen in as we show you how to sharpen your pencil and do the math!

Listen Now:
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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed. Visit our Feedback page and tell us what you think!

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