Commercial Property ROI Calculator
Evaluate the profitability of a commercial real estate investment by calculating Net Operating Income (NOI), Cap Rate, Cash-on-Cash Return, and Equity Multiple over your holding period.
Purchase & Financing
Annual Income
Annual Operating Expenses
Growth & Exit Assumptions
Formulas Used
Effective Gross Income (EGI):
EGI = Gross Rent × (1 − Vacancy Rate) + Other Income
Net Operating Income (NOI):
NOI = EGI − Total Operating Expenses
Cap Rate:
Cap Rate = NOI / Purchase Price × 100
Monthly Mortgage Payment:
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
where P = loan amount, r = monthly rate, n = total monthly payments
Before-Tax Cash Flow:
Cash Flow = NOI − Annual Debt Service
Cash-on-Cash Return:
CoC = Annual Cash Flow / Total Cash Invested × 100
Debt Service Coverage Ratio (DSCR):
DSCR = NOI / Annual Debt Service
Gross Rent Multiplier (GRM):
GRM = Purchase Price / Gross Annual Rent
Projected Sale Price (Exit):
Sale Price = Final Year NOI / Exit Cap Rate
Equity Multiple (EM):
EM = (Total Cash Flow + Net Sale Proceeds + Equity Invested) / Equity Invested
IRR: Solved via Newton-Raphson on the levered cash flow series: [−Equity In, CF₁, CF₂, …, CFₙ + Net Sale Proceeds]
Assumptions & References
- All calculations are before income tax; depreciation, capital gains tax, and 1031 exchanges are not modeled.
- Mortgage uses standard fixed-rate fully amortizing schedule (no interest-only or balloon).
- Income and expenses grow at constant annual rates (geometric progression).
- Exit sale price is determined by dividing the final holding-year NOI by the exit cap rate (direct capitalization method).
- A DSCR ≥ 1.25 is typically required by commercial lenders (FDIC Commercial Real Estate Lending guidelines).
- Cap rate benchmarks vary by market and asset class; typical ranges are 4–10% (CBRE, JLL market reports).
- IRR is computed on levered (after-debt) cash flows using Newton-Raphson iteration.
- Closing costs typically range 2–5% of purchase price for commercial properties.
- References: CCIM Institute, NAIOP, Urban Land Institute (ULI) real estate finance standards.