Understanding Investment Metrics: Cap Rate, Yield, DSCR & More

What it measures: The unlevered return on a property based on its income relative to market value — essentially, how much income the asset produces per dollar of value, before financing.

The formula:

Cap Rate = (Net Operating Income ÷ Current Market Value) × 100

Net Operating Income (NOI) is gross rental income minus operating expenses (property taxes, insurance, maintenance, management fees, utilities paid by the owner, etc.). It excludes mortgage payments, capital improvements, and income taxes. Current Market Value (CMV) is the property’s estimated value today — often from a recent appraisal, broker opinion, or your own comp-based estimate.

Example: A duplex generates $48,000 in annual NOI and is valued at $600,000. Cap rate = ($48,000 ÷ $600,000) × 100 = 8.0%.

Real-world applications:

• Comparing properties across markets — Cap rate normalizes income against price, so you can compare a $200K single-family rental in one city to a $1.2M fourplex in another.
• Valuation (the “cap rate method”) — If similar stabilized assets in an area trade at a 7% cap, you can estimate value as NOI ÷ 0.07. A property with $70,000 NOI might be worth roughly $1,000,000.
• Lender and partner conversations — Commercial lenders and equity partners often benchmark deals against market cap rates to judge whether a price is aggressive or conservative.

In Tenantivo: Select Capitalization Rate on the Metrics page, enter NOI and Current Market Value, and the grid calculates the cap rate automatically. Use the memo field to note your valuation source or expense assumptions.

What it measures: How much gross rent the property generates relative to its value — a quick, top-line income efficiency ratio before expenses.

The formula:

Gross Rental Yield = (Annual Rental Income ÷ Property Value) × 100

Unlike cap rate, gross yield uses gross rent — total scheduled rent before subtracting operating expenses or vacancy. Property Value is the current market value or purchase price, depending on what you are analyzing.

Example: A property rents for $2,000/month ($24,000/year) and is worth $300,000. Gross rental yield = ($24,000 ÷ $300,000) × 100 = 8.0%.

Real-world applications:

• Fast deal screening — Investors often use a gross yield “rule of thumb” (e.g., 1% monthly rent-to-price ratio, or 12% gross yield) to filter listings before running a full pro forma.
• International comparisons — Gross yield is widely cited in residential markets worldwide and is easy to communicate to non-technical stakeholders.
• Identifying expense-heavy properties — When gross yield looks strong but net yield or cap rate is weak, expenses or vacancy are eating the margin.

In Tenantivo: Choose Gross Rental Yield, enter annual rental income and property value. This is ideal for quick snapshots on individual units or small portfolios.

What it measures: The income the property actually retains after operating expenses, expressed as a percentage of property value. It bridges the gap between gross yield and cap rate for residential investors.

The formula:

Net Rental Yield = ((Annual Rental Income − Annual Expenses) ÷ Property Value) × 100

Annual Expenses includes recurring operating costs: taxes, insurance, maintenance, HOA, management, and similar line items. It typically does not include mortgage principal and interest (debt service).

Example: Annual rent is $36,000, annual expenses are $9,000, and property value is $450,000. Net rental yield = (($36,000 − $9,000) ÷ $450,000) × 100 = 6.0%.

Real-world applications:

• True income efficiency — Net yield shows what the asset earns after the cost of keeping it rented and maintained.
• Portfolio benchmarking — Compare net yield across your holdings to spot underperforming assets that need rent increases or expense cuts.
• Buy-and-hold vs. flip decisions — A property with moderate gross yield but strong net yield may be a better long-term hold than one with inflated gross numbers and hidden expense drag.

In Tenantivo: Select Net Rental Yield and enter annual rental income, annual expenses, and property value. Track multiple scenarios (current vs. pro forma after rehab) as separate metric records.

What it measures: The annual cash return on the actual dollars you put into the deal — down payment, closing costs, rehab out-of-pocket, and other cash at closing. Unlike cap rate, cash-on-cash accounts for financing.

The formula:

Cash-on-Cash Return = (Annual Net Cash Flow ÷ Total Cash Invested) × 100

Annual Net Cash Flow is what lands in your bank account after all income and all expenses, including debt service (mortgage payments). Total Cash Invested is the equity you deployed — not the full purchase price.

Example: You invest $80,000 cash (down payment + closing + rehab). After all expenses and mortgage payments, the property generates $6,400 in annual net cash flow. Cash-on-cash = ($6,400 ÷ $80,000) × 100 = 8.0%.

Real-world applications:

• Leverage analysis — A property with a 5% cap rate can deliver 10%+ cash-on-cash if financed conservatively, because you are earning income on the full asset while only risking part of the capital.
• Comparing to other investments — Operators often weigh cash-on-cash against stock dividends, bonds, or savings yields to judge whether a rental justifies the operational effort.
• Refinance and hold decisions — When rates change or equity builds, recalculating cash-on-cash shows whether pulling cash out still leaves acceptable returns.

In Tenantivo: Choose Cash on Cash Return, enter annual net cash flow and total cash invested. Document your down payment and closing cost breakdown in the memo for future reference.

What it measures: What percentage of a tenant’s gross monthly income goes toward rent. It is a tenant affordability and credit-risk indicator, not a property-level return metric.

The formula:

Rent-to-Income Ratio = (Monthly Rent ÷ Monthly Gross Income) × 100

Example: Rent is $1,500/month and the applicant earns $5,000/month gross. Rent-to-income = ($1,500 ÷ $5,000) × 100 = 30%.

Real-world applications:

• Tenant screening — Many landlords and property managers use a 30% (or 33%) threshold: rent should not exceed roughly one-third of gross household income. Higher ratios correlate with payment stress and turnover risk.
• HUD and affordable housing programs — Subsidized housing often caps tenant rent burden at 30% of adjusted income. The same ratio appears in market-rate screening policies.
• Setting rent levels — Knowing median incomes in your submarket helps you price units competitively without overburdening qualified applicants.
• Portfolio risk management — Tracking average rent-to-income across units highlights exposure if local wages stagnate while rents rise.

In Tenantivo: Select Rent to Income Ratio, enter monthly rent and the tenant’s monthly gross income. Store one record per unit or applicant to document screening decisions.

What it measures: What share of gross operating income is consumed by operating expenses plus debt service. It answers: “How much of every rent dollar goes out the door before I see a profit?”

The formula:

Break-Even Ratio = ((Annual Operating Expenses + Annual Debt Service) ÷ Annual Gross Operating Income) × 100

Annual Gross Operating Income is total rental and other property income before expenses. When the break-even ratio reaches 100%, the property covers its costs exactly but produces no cash flow. Above 100%, the property is cash-flow negative.

Example: Gross income is $60,000/year, operating expenses are $18,000, and debt service is $24,000. Break-even ratio = (($18,000 + $24,000) ÷ $60,000) × 100 = 70%. Thirty cents of every gross income dollar remains as cash flow before taxes.

Real-world applications:

• Stress testing — Lenders and experienced operators want cushion below 100%. A ratio of 85–90% leaves room for vacancy spikes or unexpected repairs.
• Refinance readiness — If break-even creeps above 95% after a rate reset, you may need to raise rents, cut expenses, or inject capital before refinancing.
• Comparing financing structures — Two loans with the same interest rate but different amortization schedules produce different break-even ratios because annual debt service differs.

In Tenantivo: Choose Break Even Ratio and enter annual operating expenses, annual debt service, and annual gross operating income. Pair this metric with DSCR for a complete debt-risk view.

What it measures: Total profit (or loss) on an investment relative to the amount invested — the classic “how much did I make on my money?” figure. ROI captures the full lifecycle: purchase, hold, improvements, and sale (or refinance proceeds).

The formula:

ROI = ((Total Return − Total Investment) ÷ Total Investment) × 100

Total Investment includes purchase price, closing costs, rehab spend, carrying costs, and any other capital deployed. Total Return is what you receive back — typically net sale proceeds after paying off debt, or cumulative cash flow plus exit proceeds for a hold-and-sell strategy.

Example: You invest $150,000 total (purchase + rehab + holding). You sell for $210,000 net after commissions and loan payoff is excluded from return — or, more simply, total return is $225,000 (sale proceeds to you). ROI = (($225,000 − $150,000) ÷ $150,000) × 100 = 50%.

Real-world applications:

• Flip project evaluation — ROI is the headline number flip investors report to partners and lenders. It captures appreciation and forced equity from rehab in one figure.
• Comparing hold vs. sell — Calculate projected ROI if you sell today versus holding five more years with cumulative cash flow plus future sale.
• Partner and investor reporting — Equity partners often care about ROI over the full project timeline, not just annual cash-on-cash during the hold.

In Tenantivo: Select Return on Investment, enter total return and total investment. For flips, tie the numbers to your Rehab Detail actuals; for rentals, include both cash flow received and disposition proceeds in total return.

What it measures: Whether the property’s net operating income is sufficient to cover annual debt payments. DSCR is expressed as a ratio (not a percentage): how many times NOI “covers” the mortgage.

The formula:

DSCR = Annual Net Operating Income ÷ Annual Debt Service

A DSCR of 1.25 means NOI is 125% of debt service — the property generates 25% more income than required to make loan payments. A DSCR below 1.0 means the property does not cover its debt from operations alone.

Example: NOI is $50,000/year and annual debt service (principal + interest) is $40,000. DSCR = $50,000 ÷ $40,000 = 1.25.

Real-world applications:

• Commercial and DSCR loan underwriting — Many non-owner-occupied and portfolio lenders require minimum DSCR thresholds (commonly 1.20–1.25 for stabilized assets). Below the minimum, the loan may be declined or require additional equity.
• Portfolio health checks — Track DSCR across properties to identify assets at risk if rates adjust or vacancies rise.
• Acquisition go/no-go — Before closing, model DSCR at current rent and at pro forma rent to ensure the deal works both day one and after stabilization.

In Tenantivo: Choose Debt Service Coverage Ratio, enter annual NOI and annual debt service. Use the same NOI definition as cap rate for consistency across your metric records.

No single ratio tells the whole story. Experienced operators typically layer metrics by decision type:

• Acquisition screening: Gross yield and cap rate for quick comparison; net yield and DSCR before committing.
• Financing: DSCR and break-even ratio for lender packages; cash-on-cash for your personal return after leverage.
• Operations: Rent-to-income for tenant screening; net yield and break-even for annual portfolio reviews.
• Exit planning: ROI for total project outcome; cap rate on stabilized NOI for buyer valuation conversations.

On Manager > Metrics, use the dropdown at the top of the page to switch between metric types. Each type has its own grid where you can add, edit, and export records. Attach memos to document assumptions — vacancy rates, expense estimates, loan terms — so future you (or a partner reviewing the file) understands how each figure was built.

Metrics complement the broader reporting in Tenantivo: transactions feed actual income and expense data, while the Metrics workspace lets you model scenarios, compare assets, and maintain a library of underwriting snapshots independent of any single report period.