Commercial property calculator
Size up a retail, office, apartment or self-storage property: what it earns, what it's worth at today's cap rates and what it returns once you finance it.
What this answers: What does this property earn, what is it worth at market cap rates, and what will it return once I finance it?
Start from an example, then change any number:
At this price the cap rate is 7.0%. At a 7.00% market cap rate it's worth about $1,695,714, close to the asking price. With the loan, cash flow is $17,772 a year (3.2% cash-on-cash) and the DSCR is 1.18, below the 1.25 most lenders want.
- Effective gross income
- $176,700
- Operating expenses
- $58,000
- Expense ratio
- 32.8%
- NOI per sq ft
- $13.19
- Loan
- $1,190,000
- Loan payments / yr
- $100,928
- Cash invested
- $550,000
How this is calculated
- 1Effective gross income = (gross rent + other income) × (1 − vacancy %).
- 2Operating expenses = your yearly total, or effective gross income × the expense ratio when you enter one. NOI = effective gross income − operating expenses.
- 3Cap rate = NOI ÷ price. Value at the market cap rate = NOI ÷ market cap rate.
- 4Loan = price × (1 − down payment %), paid over the amortization at your rate. DSCR = NOI ÷ yearly loan payments. Cash flow = NOI − loan payments.
- 5Cash-on-cash = cash flow ÷ (down payment + closing costs). Price per sq ft = price ÷ rentable square feet; per unit = price ÷ units.
Commercial properties are valued on NOI, so a small error in income or expenses moves the value a lot: at a 7% cap rate, every $1,000 of NOI is worth about $14,000. Use the seller's actual rent roll and expense history, and budget reserves for roofs, parking lots and tenant improvements.
Words to know
- Gross rent
- The rent you'd collect if every space were leased all year at current rents.
- Vacancy and credit loss
- Rent you won't collect because spaces sit empty or tenants don't pay. 5–10% is common; more for offices.
- NOI (net operating income)
- Income after vacancy minus operating expenses. Loan payments and income taxes aren't included.
- Cap rate
- NOI ÷ price: the yearly return if you paid cash. A lower cap rate means a higher price for the same income.
- Expense ratio
- Operating expenses ÷ effective gross income. Triple-net retail can be under 15%; apartments often run 35–50%.
- Cash-on-cash return
- Yearly cash flow after loan payments ÷ the cash you put in.
- DSCR
- NOI ÷ yearly loan payments. Lenders usually want at least 1.25.
- Price per square foot
- A quick way to compare buildings of different sizes. Compare like with like: retail to retail, office to office.
Frequently asked questions
- Should I enter the asking price or my offer?
- Try both. Enter the asking price to see the cap rate the seller is pricing at, then your offer to see the return you'd actually get.
- What should I include in operating expenses?
- Property taxes, insurance, repairs and maintenance, management, utilities you pay, landscaping, snow removal, and a reserve for big replacements. Don't include loan payments, depreciation or income taxes.
- What if tenants reimburse expenses?
- Put reimbursements in other income (under Advanced) and the full expenses in operating expenses. On a fully triple-net building they mostly cancel out.
- Should I use the expense ratio or dollar expenses?
- Use dollar expenses from the seller's statement when you have them. The expense ratio is a quick estimate when you don't.
- Why compare price per square foot?
- It's a quick check against recent sales of similar buildings. A price well above the area's sales of the same property type needs a good reason.