Same NOI, three jobs
Net operating income is the shared numerator for yield and coverage stories. How you divide it — and what you put in the denominator — changes the decision.
Investors who argue “7% is better than 1.25” are usually comparing incompatible metrics. Name the question before you trust the number.
Cap rate — purchase yield before financing
Cap rate = NOI ÷ purchase price. It compares assets as if you paid cash. Two buyers can share a cap rate and still land on different monthly outcomes once leverage differs.
Use cap rate to screen markets and listings quickly. Do not use it alone to size a leveraged buy-and-hold.
- Strength: apples-to-apples asset comparison across financing styles.
- Blind spot: ignores down payment, rate, closing costs, and rehab left in.
- BrickAtlas: purchase-only cap rate on every rental memo; all-in yield reported separately when rehab applies.
Cash-on-cash — return on the cash you actually leave
Cash-on-cash = annual pre-tax cash flow ÷ cash invested. Cash invested usually means down payment, closing costs, and renovation equity you do not refinance out.
It answers “how hard is my cash working?” High leverage can inflate CoC while raising risk. Low leverage can look weak on CoC while being safer on DSCR.
- Strength: matches how operators talk about capital efficiency.
- Blind spot: silent on whether the loan is safely covered; sensitive to optimistic rent.
- BrickAtlas: CoC sits next to cash flow so you see dollars and percent together.
DSCR — lender coverage, not lifestyle yield
DSCR = annual NOI ÷ annual debt service. Lenders care whether the property’s operations cover the note. A deal can show strong CoC and still fail a 1.20–1.25 DSCR screen if income is thin relative to payment.
DSCR does not tell you how much cash you left in the deal. Pair it with CoC and cash flow before you celebrate a “lender-ready” ratio.
How to read them together
A practical order of operations:
- 01
Screen with cap rate
Is the asset’s unlevered yield even in the conversation for this market?
- 02
Underwrite cash flow and CoC
With your real down payment and rate, do monthly dollars and capital efficiency hit persona targets?
- 03
Check DSCR
Will conventional, DSCR, or portfolio lenders clear coverage at your assumptions?
- 04
Stress the soft spots
Raise vacancy, taxes, or rate by a notch. If all three metrics collapse, you were underwriting hope.