Question 1

How do I analyze a commercial real estate deal?

Accepted Answer

Start with income: gross rent minus vacancy is effective gross income (EGI); EGI minus operating expenses is net operating income (NOI). NOI divided by price is the cap rate. Subtract annual debt service from NOI to get cash flow; divide that by cash invested for cash-on-cash return. NOI divided by debt service is DSCR. This tool computes all of them as you type.

Question 2

What is a good DSCR for a commercial loan?

Accepted Answer

Debt service coverage ratio (DSCR) is NOI ÷ annual debt service. Most commercial lenders want at least 1.25x, meaning NOI covers the loan payment with 25% cushion. Below ~1.1x, financing gets difficult and the deal is risky. This calculator flags where you land.

Question 3

Is a higher or lower cap rate better?

Accepted Answer

It depends on your goal. For a buyer, a higher cap rate means a lower price relative to income (more yield, often more risk or a weaker location). For a seller, a lower cap rate means a higher value. Compare the cap against real comps for the asset type and submarket — that context is exactly what a broker opinion of value provides.

Commercial deal analyzer.

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