Cash on Cash Return - Cash on cash measures the initial profitability of a rental property. The higher the better, and typically a first-year cash on cash return ranges from about 4% to 10%.

Formula: Cash on Cash = Before Tax Cash Flow / Cash Equity (Initial Investment)

Gross Rent Multiplier - Gross rent multiplier measures the ratio between annual gross rental income and sale price. Think of it as an indication of the number of years it takes the annual rental income to equal the price, so the lower the better. It is good for simple comparisons to other rental property opportunities but insufficient as a stand-alone number.

Formula: Gross Rent Multiplier = Purchase Price / Gross Rent

Capitalization Rate - Capitalization Rate (cap rate) is essentially a return on asset indicator of how much debt an income property can carry. The higher the return rate, the more debt a property can support, and hence the better the investment opportunity for the real estate investor. Sellers of income property, of course, prefer to sell at lower cap rates. Local markets dictate capitalization rate (there is no one-size-fits-all) but they typically run from about 5% to 12%.

Formula: Capitalization Rate = Net Operating Income / Purchase Price or Value