The accept/reject benchmark value for each indicator varies from investor to investor, investors adjust the accept/reject benchmark values according to risk tolerance levels and investment goals. This indicators are for investors only. If you are buying your home sweet home they make little sense.
The following table provides a point of reference about typical accept/reject benchmarking settings for each indicator.
From the buyer point of view:
The following table provides a point of reference about typical accept/reject benchmarking settings for each indicator. ( From Wikipedia.org )
Example accept criteria
Example reject criteria
Gross rent multiplier
Less than 9
Greater or equal 9
The lower the better for the investor ( assuming he is buying). Calculates the market value of the property.
Cash on cash return
Greater or equal 10%
Less than 10%
The higher the better. Measures the return on cash invested.
Greater or equal 1.0
Less than 1.0
The higher the better. : Measures the financial efficiency and desirability of the investment property.
Internal rate of return
Greater or equal 8%
Less than 8%
The higher the better. It shows the total percentage return on an investment.
The higher the better. Calculates the net cash flow of the property after expenses and taxes.
There is no magic accept/reject criteria for the benchmarking indicators, each investor needs to make the determination on which criteria is appropriate for each particular situation. Also the accept / reject criteria are influenced from other variables like Interest Rate, Inflation rate, volatility or risk associated with the investment etc.