Several formulas are used in commercial real estate (CRE) analysis to evaluate the financial performance of properties and determine their potential return on investment. Some of the most important ones include:
Net Operating Income (NOI)
NOI is calculated by subtracting operating expenses from gross rental income. It measures the property’s financial performance and is used to evaluate the potential return on investment. More here >>
Capitalization (Cap) Rate
Cap rate is calculated by dividing the net operating income by the property value and is used to estimate the expected rate of return on an investment property. More here >>
Rental Yield (RY)
RY is calculated by dividing the property’s value by its gross rental income and is used to estimate the value of a property based on its rental income. More here >>
Debt Service Coverage Ratio (DSCR)
DSCR is calculated by dividing the net operating income by the annual debt service (loan payment) and is used to determine a property’s ability to generate enough income to cover its debt obligations.
Internal Rate of Return (IRR)
IRR is a commonly used metric in CRE investment analysis to measure the profitability of a real estate investment. It represents the annualized rate of return for a property investment, taking into account both the initial investment and the expected cash flows from the property over time. More here >>
Return on Investment (ROI)
ROI is calculated by dividing the net income from an investment by the initial investment and is used to measure the return on investment for a property.