From the course: Real Estate Analysis Foundations

Intro to measures of returns - Microsoft Excel Tutorial

From the course: Real Estate Analysis Foundations

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Intro to measures of returns

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- Now, you're going to want to pay close attention to this section. This section is the most conceptually challenging section for the students, but it is the meat of the course. Now, it's going to take some time, especially if you don't have a familiarity or a background, but these concepts here is a prerequisite for all investors that want to be able to answer the one big question they're all going to come across when they're evaluating different investment opportunities. Is investment opportunity A better or worse than opportunity B or C or D? How do you compare them? You see, no two investments are identical. Even in the same market, properties are different. They may have different purchase prices, different amenities, different rental income potential, different renovation requirements, and thus costs and maybe timing, and different risks involved. See, to do this, to be able to compare consistently, we need consistent measures to normalize these investment opportunities so that we can compare them on an apples-to-apples basis. Different purchase prices, different costs, no problem. We can compare them on a dollar-for-dollar base. Different timing for cash flows and profits, no problem. We can use measures that account for both the timing and magnitude of these cash flows so that we can compare them evenly. Professional and savvy investors use these measures of returns to evaluate opportunities all the time. These are the standards. And I'm going to show you the most important, most frequently used measures in this section. All right, let's dive in.

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