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Here are the key real estate investment metrics explained:

Here are the key real estate investment metrics explained:

**ROI (Return on Investment)**
Total profit relative to total capital invested. Includes both income and appreciation. Formula: (Net Profit / Total Investment) × 100. Broadest measure — accounts for everything.

**Cap Rate (Capitalization Rate)**
NOI (Net Operating Income) divided by property value. Measures a property's income-generating potential *independent of financing*. Formula: NOI / Property Value. Used to compare properties and gauge market pricing.

**Yield on Cost**
NOI divided by your *total cost* (purchase + renovations). Similar to cap rate, but anchored to what you actually paid/spent — not market value. Useful for value-add deals to measure return on your all-in basis.

**Capital Gain**
Profit from the *appreciation* in property value upon sale. Formula: Sale Price − Purchase Price (adjusted for improvements). Subject to capital gains tax (short- or long-term depending on hold period).

**Fiscal Yield**
The income return relative to investment, often from a tax or government accounting perspective. In some contexts this refers to the *after-tax* income yield, or the yield used in public/municipal bond-style property valuations.

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**Quick comparison:**

| Metric | Numerator | Denominator | Financing included? |
|---|---|---|---|
| ROI | Net total profit | Total invested capital | Yes |
| Cap Rate | NOI | Market value | No |
| Yield on Cost | NOI | All-in cost basis | No |
| Capital Gain | Sale price − cost | — | Depends |
| Fiscal Yield | Net income (after-tax) | Investment | Sometimes |

Want me to walk through a numerical example for any of these?

Let me run through a concrete example with one property across all five metrics.

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**The Deal**

- Purchase price: $1,000,000
- Renovation costs: $100,000
- Down payment (30%): $300,000
- Loan amount: $700,000
- Annual mortgage payments: $42,000
- Gross annual rent: $80,000
- Operating expenses (taxes, insurance, maintenance, mgmt): $20,000
- Sale price after 5 years: $1,250,000

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**NOI = Gross Rent − Operating Expenses**
$80,000 − $20,000 = **$60,000/year**

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**1. Cap Rate**
NOI / Market Value
$60,000 / $1,000,000 = **6%**

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**2. Yield on Cost**
NOI / All-in Cost
$60,000 / $1,100,000 = **5.45%**

> Lower than cap rate here because renovations added to your cost basis without yet boosting NOI fully.

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**3. ROI (after 5 years)**
- Total NOI over 5 years: $300,000
- Minus mortgage payments: −$210,000
- Net cash flow: $90,000
- Capital gain on sale: $150,000
- **Total profit: $240,000**

ROI = $240,000 / $300,000 (equity invested) = **80% over 5 years (~16%/year)**

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**4. Capital Gain**
Sale Price − Purchase Price
$1,250,000 − $1,000,000 = **$250,000**

> If held over 1 year, taxed at long-term capital gains rate (typically 15–20% in the US). After 20% tax: **$200,000 net**.

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**5. Fiscal Yield**
After-tax net income / Total investment
- Annual cash flow after mortgage: $18,000
- Assume 25% income tax: $13,500 net
- $13,500 / $300,000 = **4.5%**

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**Summary Table**

| Metric | Result |
|---|---|
| Cap Rate | 6.0% |
| Yield on Cost | 5.45% |
| ROI (5-yr annualized) | ~16% |
| Capital Gain | $250,000 ($200K after tax) |
| Fiscal Yield | 4.5% |

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The key takeaway: each metric tells a *different part* of the story. Cap rate and yield on cost measure the asset's income power. ROI captures the full picture. Fiscal yield shows what you *keep* after tax.

Want me to adjust any of the assumptions or model a different scenario?

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Here are the key real estate investment metrics explained:

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