Investment property analysis becomes easier when you understand what each number is trying to tell you. Start with a small set of clearly defined inputs and metrics.

1. Total acquisition cost. Look beyond the asking price and record relevant transaction and initial improvement costs.

2. Gross rental income. Estimate annual rent using supportable assumptions rather than the most optimistic figure available.

3. Operating expenses. Include the recurring property costs relevant to the asset, such as taxes, insurance, maintenance, management and applicable fees.

4. Cash flow. This shows the cash remaining after the expenses and financing payments included in your model.

5. Rental yield. Gross or net yield can help with initial comparisons, but make sure you know which version you are using.

6. Cap rate. This generally compares net operating income with property value or purchase price and is commonly considered before financing effects.

7. Cash-on-cash return. This compares annual pre-tax cash flow with the cash invested, although definitions and included items can vary.

These figures should not be treated as independent answers. They are outputs from assumptions. Change the rent, vacancy, expense or financing assumptions and the result can change substantially.

Keep your model transparent. Label every input, use consistent definitions across properties and test alternative scenarios. The objective is not to produce the most attractive percentage; it is to understand what conditions are required for the investment case to work.