How to calculate your commercial real estate’s key metrics
1. Net Operating Income (NOI): The property’s first year gross operating income, less the year’s operating expenses.
2. Cap Rate: The capitalization rate shows the value of income-producing properties. Calculate Cap Rate like this: divide the investment’s net operating income (NOI) by the current market value of the property. The formula can be expressed in the following way:
Capitalization Rate = Net Operating Income / Current Market Value
3. Cash on Cash: Compares the first-year performance of competing properties. The formula to determine Cash on Cash is the annual dollar income divided by the total dollar investment.