Which metric is commonly used alongside the cap rate to assess real estate investments?

The correct answer is that all of the listed metrics—Internal Rate of Return (IRR), Cash-on-Cash Return, and Gross Rent Multiplier (GRM)—are commonly used alongside the cap rate to assess real estate investments.

Cap rate, or capitalization rate, is a fundamental measure in real estate that provides an estimate of the potential return on an investment property, calculated as the net operating income divided by the property’s value. However, it’s only one piece of the puzzle. Each of the additional metrics serves to provide a more comprehensive understanding of the investment's potential performance.

The Internal Rate of Return (IRR) considers the time value of money, providing insight into the expected annualized return over the investment horizon, making it a valuable metric for long-term real estate investments. Cash-on-Cash Return delivers a straightforward measurement of cash flow relative to the initial cash investment, helping investors understand the immediate profitability of the investment. Meanwhile, the Gross Rent Multiplier (GRM) offers a quick way to evaluate properties based on gross rental income, making it easier for investors to compare multiple properties at a glance.

Using these metrics in conjunction with the cap rate allows investors to make more informed, holistic decisions regarding their real estate investments, catering