I am always making up spreadsheets with different way of analyzing different properties more to satisfy the OCD side of my personality then for any real necessity. Cap rate, ROI, cash on cash, GRM really come down to back of an envelope calculations. The big unknown is expenses. Once you have a handle on that the rest is pretty simple – just pick up a calculator from the dollar store.
The way I do ROI is work out the cap rate, then apply it to down payment and figure the arbitrage rate on the loan and apply it to amount borrowed. Example:
10% cap, therefore the down payment dollars will bring you 10%
Loan 4.5%, therefore the borrowed dollars will bring you 5.5%.
Working up the ROI on a deal becomes really back of an envelope stuff once you see that.
One thing I have been doing lately that I did not do so much in the past is to analyze using GRM. Yes, I understand it is just another route to get to the same destination, and it is just another way of looking at the same thing. But the thing I like about it is the number tells you how much you are paying per dollar of rent you get to collect. Looking at it like that cuts through a bunch of BS thinking. A deal I looked at this morning had a GRM of 8.5. That means you are paying $8.50 for every rent dollar you get to try to collect. Last year I bought a park where I paid about $4.00 per rent dollar. Say your expenses run 40%. That mean you get to keep $.60 of that rent dollar you bought. If you pay $8.50 for that .60, you are making a 7% return on the capital. If you pay $4.00 for it, you are getting 15% return. It does not matter if it is your capital or the banks capital, that is what it will be making. If you have to pay the bank 4.5% to use their capital for the deal you will be making…well, you can see how simple all of this is; like Jefferson said; back of an envelope. And I think running these numbers and looking at it upside down, inside out an backwards is one of the most enjoyable parts of real estate investing business.