Module 2: Real Estate Investment Basics

Key Metrics: NOI, Cap Rate, IRR, Cash-on-Cash Return, Equity Multiple

Learn the 5 essential metrics — NOI, Cap Rate, IRR, Cash-on-Cash Return, and Equity Multiple — to evaluate real estate investment performance.

RealVantage

16 Sep 2025 • 3 min read

Introduction

In real estate investing, numbers tell the story. Whether it’s a residential apartment or an institutional-grade logistics facility, investors need clear and reliable ways to measure performance and compare opportunities. Among the many indicators, five metrics dominate the conversation: Net Operating Income (NOI), Capitalisation Rate (Cap Rate), Internal Rate of Return (IRR), Cash-on-Cash Return, and Equity Multiple. Understanding these core measures allows investors to make smarter decisions and avoid costly mistakes.

Net Operating Income (NOI)

Net Operating Income represents the annual income a property generates after operating expenses are deducted, but before accounting for financing costs and taxes. The formula is straightforward:

NOI = Gross Rental Income – Operating Expenses

This figure is a fundamental measure of a property’s ability to generate income from its core operations, and it also serves as the base for other important calculations such as Cap Rate.

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Example: If a warehouse earns S$2,000,000 in rent and has S$500,000 in expenses, its NOI would be S$1,500,000.

Capitalisation Rate (Cap Rate)

The Cap Rate expresses the percentage return a property generates based on its NOI and current market value. It is calculated using the formula:

Cap Rate = NOI ÷ Property Value

This metric allows investors to compare different properties’ income potential relative to their price. Lower cap rates are typically found in prime, lower-risk locations, while higher cap rates may suggest greater risk or untapped growth potential.

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Example: A retail mall with an NOI of S$3,000,000 and a market value of S$50,000,000 would have a cap rate of 6%.

Internal Rate of Return (IRR)

The Internal Rate of Return is the annualised rate of return that makes the net present value (NPV) of all projected cash flows, including rental income and sale proceeds, equal to zero.

The key advantage of IRR is that it incorporates the time value of money, enabling investors to fairly compare deals with different holding periods and cash flow patterns.

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Example: Suppose two projects each promise S$500,000 in total profit. If one delivers most of the returns within the first two years, while the other distributes them only at the end of year five, the first project will show a higher IRR.

Cash-on-Cash Return

Cash-on-Cash Return measures the ratio of annual pre-tax cash flow to the total cash invested, expressed as a percentage. The formula is:

Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested

This metric is especially useful for investors focused on annual income yield, as it highlights the return on actual cash deployed rather than overall project profitability.

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Example: An investor who places S$1,000,000 into a property and receives S$80,000 in annual pre-tax cash flow achieves an 8% cash-on-cash return.

Equity Multiple

The Equity Multiple represents the total cash returned to an investor divided by the total cash invested, measured over the full life of the investment. It is calculated as:

Equity Multiple = Total Cash Distributions ÷ Total Equity Invested

This measure is simple and intuitive, showing overall returns in multiples (for instance, a 2.0x equity multiple means doubling your money). However, since it does not account for the time value of money, it should be considered alongside IRR for a more complete view.

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Example: Investing S$500,000 and receiving S$1,000,000 in total cash flow and sale proceeds over five years results in an equity multiple of 2.0x.

How These Metrics Work Together

Each of these metrics highlights a different aspect of investment performance. NOI establishes the property’s income potential. Cap Rate puts that income in context relative to property value. IRR adds the dimension of time, capturing how quickly returns are realised. Cash-on-Cash Return zeroes in on annual income yield from the investor’s own capital, while Equity Multiple provides a big-picture view of the total returns achieved over the investment horizon.

How RealVantage Helps Investors

At RealVantage, all these metrics are presented in our investment briefs to give investors clarity and confidence. Alongside them, we provide projected cash flow schedules, sensitivity analyses under different market scenarios, and transparent assumptions that support informed decision-making. This holistic approach ensures investors can evaluate opportunities from multiple angles before committing capital.

Next in the Series

📖 Read next: Real Estate Financing Fundamentals — Learn how deals are funded, from traditional bank loans to innovative financing structures.

Learn more

Disclaimer

This article is for informational purposes only and does not constitute investment advice. All investments carry risks, including the potential loss of capital. Past performance is not indicative of future results. Investors should conduct their own due diligence and seek professional advice before making investment decisions.