The One Property Metric To Rule Them All (With Free Download)

Lisa Lim @GoodPlaceHQ

Hello, it’s Penrose here, writing this week’s Homebuyer’s Guide on behalf of Khai Yin. As you may know, GoodPlace has launched its listings portal about a month ago, and with that part of the business picking up steam, he has asked me to take over the blog for a couple of weeks while he works on the portal, and so that’s why I’m here. 🙂

Now I must preface this by saying that I am not an articulate writer as I’m primarily a numbers guy (see my first guest post here at GoodPlace last week). However, these articles still go through our resident editor Lynda Patterson, B.A.Ed, and so you can be assured that the GoodPlace standard is not being compromised. (And in case if you’re wondering, yes, Khai Yin also gets his articles edited professionally by Madame Lynda because that dude’s grammar and spelling is atrocious as mine, if not worse.)

Khai Yin told me that we have a long-standing tradition of posting funny animated GIFs in GoodPlace. Being a Batman fan since I was a kid (can’t wait for the Batman v Superman movie!), the below is my best find after scouring the Internet for about an hour. Please enjoy.

batman

Now with that out of the way… let’s talk about the serious stuff. 🙂

Being a math geek, I’m a big fan of the number-crunching approach when it comes to property investments, but then again, I had plied my trade as a math lecturer just not long ago, and as they say, when all you’ve got is a hammer, everything looks like a nail to you. 😉 Self depreciating jokes aside, I’m of the opinion that something as huge as property should not be left to the whims and fancies of the heart. After all, like any good business decision, the numbers must make sense before one pulls the proverbial trigger.

The Five Most Important Property Metrics – A Recap

To recap my post on the sexily named “Geek Investor’s Toolbox“, below are the five property metrics that we use to separate the good investment opportunities from the bad:-

  1. Cash On Cash Return (CoCR) – use this to calculate the short-term (typically the first year) cash return potential of an investment opportunity
  2. Gross Rent Multipler (GRM) – evaluates the cash generating potential of a rental property
  3. Occupancy Breakeven Ratio (BRO) – especially useful for multi-lets, this metric gives you the target occupancy rate before you breakeven
  4. Operating Expenses Ratio (OER) – measures how much rental income you’ll need to set aside to pay for the ongoing expenses
  5. Internal Rate of Return (IRR) – a rather scary looking formula which lets you compare side-by-side the long-term return potential of a series of opportunities

If you’re wondering about what separates the serious players from the Average Frustrated Weekend Seminar Junkie Investor Wannabe (Khai Yin’s term, not mine), it’s their ability to base their investment decisions on hardcore metrics like these than on superfluous stuff like whether the property has a good KLCC view or nice kitchen cabinets with colors that match the curtains, etc.

This is important to note, however:- while every serious investors will have these metrics at the back of their hand, they will all place different importance on each (and that’s what makes each investor different) – otherwise everybody will make the same decisions and bid for the same properties. To develop your own investment style, you will need to figure out which metrics are more important, and which are not.

For example, I know of an investor who would typically invest for a 20-25 year period, and as such, he would place more importance on IRR than anything else. A buyer seeking to build up her multi-let portfolio would probably do her GRM calculations to decide on which property to buy.

CoCR:- One Metric To Rule Them All

As the common cliche goes, success begets success, and this is especially true in property. Believe me, the circle of successful property investors in Malaysia is surprisingly small, and when you’ve got some success under your belt, the word gets around and you become known in this circle.

You know that you’ve made it when opportunities come knocking on your door instead of having to go around looking for them. And when you do, then you’ll be in the position of power as far as bargaining goes; you will be able to cherry pick the best of the deals.

I am fortunate that I am in this circle after slogging only for a couple of years, and out of necessity, I have developed a method to quickly identify investments which have good profit potential while removing the duds. (Sidenote: Khai Yin has got a different method to do this which he has blogged about before – go here).

To me, it’s important that a property has good cash return potential before anything else, because of three reasons:-

  1. I want properties which pay for themselves over time,
  2. Properties which already generate cash can be further improved to increase the income potential, and
  3. Cash generating properties generally have better capital appreciation over the long term.

As such, Cash on Cash Return (CoCR) is the number one metric that I look at before anything else, and for a list of comparable properties, the one with the best CoCR gets picked very single time. For a template that I personally use to calculate CoCR, click on this link below.

Download Penrose’s Cash on Cash Return spreadsheet here. (Please do not share this elsewhere, thank you!)

The entry fields are simple and should be self-explanatory, but if you want further guidance then let me know.

Standard Disclaimer: The spreadsheet is provided on an “as-is” basis, and you will use it at your own risk. In other words, don’t blame me if you used it and lose money. Thank you for understanding.

I’ve personally had records of 18-month trended CoCR calculations on very specific condos like Kiaraville, Mont Kiara Meridin and Angkupuri in Mont Kiara as well as Marc Residence and One KL in KLCC – if you want to have a look at these leave me a message below or email Khai Yin.

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

Comments

  1. Hi! I’ve went through the spreadsheet but would like to know if the operating cashflow and total expenses should be a monthly or yearly figure.

  2. Azlan Kamal says:

    Hello there Penrose, amazing article! I am very interested in your 18-month trended CoCR calculations for those assets. Hope you can share them with me.

    Cheers 🙂

  3. 18-month trended CoCR calculations… YES PLEASE

  4. Khai Yin, I would love to see the 18 month CoCR calculation for the 5 condos!!!!

  5. Hi

    Could you email me COCR of those condos you mentioned?

    Thanks.

  6. Hi Penrose ! Great article and thanks for the spreadsheet. May I know why was the 10k added to the OCF formula?

    Also, I’m interested in your 18 month trend compilation, please share them with me. Thanks 🙂

  7. Hi Penrose,

    Appreciate if you can shared it with me the 18-month trended CoCR calculations for Kiaraville, Mont Kiara Meridin and Angkupuri in Mont Kiara

  8. Awesome first article Penrose..could I please grab a copy of your trended CoCr calculations for Mont Kiara please…ps: I am a big Superman fan myself.

  9. Hi Khai Yin & Penrose,

    May I have a copy of the 18-month trend compilation for Mont Kiara & KLCC properties?

    Thanks.

  10. Alex Choong says:

    Hi Both,

    I would like to have a copy of the 18-month trend compilation for Mont Kiara & KLCC properties.Thanks!

  11. Kevin Tan says:

    Thanks Penrose, appreciate if you could share your 18-month trended CoCR calculations. Zillion thanks!

  12. Hi Penrose,

    Many thanks for the spreadsheet. Nice work.
    Quick question about the equation used to calculate Operating Cashflow;
    “C19*C18+10000”

    What does the ‘+10000’ represent? I don’t get why it is part of the equation.

  13. Great article Penrose. Would you be able to share the spreadsheet for the 5 condo you mentioned above? Sounds interesting.

  14. LEE VEE WENG says:

    Hi there Penrose, amazing article! I am very interested in your trended CoCR calculations for those properties. Hope you can share them with me. Cheers!

  15. Hello there Penrose, that was a great read! I am interested in the trended CoCR calculations for those 5 properties you made. Would you be able to share that with me? Thank you!

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