Introduction

Evaluating a commercial real estate investment requires analyzing both financing costs and property performance. Key metrics include mortgage payments, cap rate, cash-on-cash return, internal rate of return (IRR), and debt service coverage ratio (DSCR). This calculator integrates loan amortization with investment returns to provide a comprehensive snapshot of your deal’s viability. By entering purchase price, loan details, NOI, and equity, you can swiftly assess financing obligations and potential profitability.

How to Use This Calculator

1. Enter the property’s purchase price and desired loan amount.
2. Provide the annual interest rate and loan term in years.
3. Input the net operating income (NOI) and equity you plan to invest.
4. Click “Calculate Metrics” to display results, including mortgage payment, cap rate, cash-on-cash return, DSCR, and approximate IRR.
5. Review the outputs and use them to inform your investment decision-making process.

Key Metrics Explained

• Mortgage Payment: The monthly payment calculated using a standard amortization formula, reflecting principal and interest over the loan term.
• Cap Rate: A measure of property yield: NOI divided by purchase price, expressed as a percentage.
• Cash-on-Cash Return: Compare annual cash flow after debt service to equity invested, showing investor yield.
• DSCR (Debt Service Coverage Ratio): NOI divided by annual debt service, indicating ability to cover debt obligations.
• Approximate IRR: Estimates total return accounting for cash flows and principal repayment over a 5-year period.

Investment Insights

Strong cap rates above 6% typically indicate higher yield opportunities but may come with increased risk. Aim for a DSCR above 1.2 to ensure adequate coverage. Cash-on-cash returns between 8–12% are often sought by investors. IRR provides a holistic view—higher IRR suggests more attractive returns but usually higher leverage or risk.

Frequently Asked Questions

What cap rate should I target?

Target cap rates vary by market. Generally, 5–7% is common for stable, income-producing properties.

How much equity is recommended?

Investors often use 20–30% equity to balance risk and return. More equity reduces leverage and monthly payments.

What DSCR is acceptable?

Lenders typically require DSCR ≥1.25, ensuring 25% buffer over debt obligations.

Explore more tools

Visit explore more tools for additional calculators.

Authoritative Source

Learn more about cap rates on Investopedia.

Disclaimer

This calculator provides estimates for informational purposes only. Always consult a financial advisor or lender for personalized guidance.