In single-family rental real estate investing, as in any business, you must know the rate of return on the capital you invest in order to maximize your success. In particular, understanding a property’s revenue potential can help you determine if you want to purchase it. Similarly, knowing how well a property is producing for you can help you plan your exit strategy and decide if you want to keep or sell it.
Two of the economic metrics used to make these determinations are what are known as cap rate (i.e., capitalization rate) and cash-on-cash return rate.
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