Which metrics are essential for evaluating a real estate investment's performance?

The selection of metrics in the first choice — Net Operating Income, cap rate, cash-on-cash return, and internal rate of return — encompasses key indicators that provide a comprehensive understanding of a real estate investment's performance.

Net Operating Income (NOI) serves as a fundamental measure, representing the income generated from a property after deducting operating expenses. It illustrates the property’s ability to generate profit independent of financing costs and provides a baseline for assessing performance.

The capitalization rate (cap rate) offers insight into the potential return on an investment relative to the property’s value. By expressing the relationship between NOI and the property value, it allows investors to gauge the investment's yield in comparison to similar properties in the market.

Cash-on-cash return evaluates the cash income earned on the cash invested in the property, helping investors assess the effectiveness of their investment in generating cash flow. This metric is particularly important for those looking to understand their liquidity relative to their initial capital outlay.

Lastly, the internal rate of return (IRR) calculates the profitability of an investment over time, considering the time value of money. It enables investors to evaluate the potential returns of an investment compared to other investment opportunities.

Together, these metrics offer a thorough evaluation of various aspects of