Lease structure changes everything
Gross leases (tenant pays rent, landlord pays taxes/insurance/maintenance) require ~35–45% opex assumptions. Absolute NNN leases (tenant pays all) can run 3–7% opex. The same building, same rent, has wildly different NOI depending on which lease type sits in place.
- • NNN: tenant pays taxes, insurance, CAM. Landlord opex is minimal.
- • Modified gross: landlord pays some operating costs, tenant reimburses excess.
- • Full-service gross: landlord pays everything. Common in older office.
Exit cap rate is the silent variable
A 50 bps cap-rate expansion on a stabilized commercial asset can erase 10–20% of value. Always stress-test exit cap +50 bps and +100 bps from your going-in assumption — if the deal only works at a compressed exit, it's a speculation, not an investment.
Tenant credit + WALT matter as much as cap rate
A 7% cap on a 10-year lease with an investment-grade tenant is a fundamentally different asset than a 7% cap on a month-to-month mom-and-pop. Weighted Average Lease Term (WALT), tenant credit, and lease renewal probability are baked into a real underwriting model — they don't show up in a back-of-envelope cap rate.
Commercial real estate doesn't price like residential — it prices off NOI and a market cap rate, full stop. A $2M building with $160k NOI is worth what an 8-cap buyer will pay (~$2M) regardless of what it sold for in 2019. This calculator runs the cap rate + cash-on-cash + DSCR math the way actual commercial lenders and brokers do it, so you stop comparing CRE deals on residential intuition.
What each input means
Get these inputs right and the output is reliable. Get them wrong and the calculator just multiplies bad assumptions.
Purchase price
All-in basis including closing, environmental, and any immediate capex.
Typical range: $500k–$3M for small commercial; $5M–$50M for institutional-grade.
Gross rental income (annual)
Annual scheduled rent across all tenants at current lease rates.
Typical range: Cap rate × purchase price, working backwards.
Vacancy + collection loss %
Realistic vacancy plus bad debt. Worse for retail and office than industrial.
Typical range: 5–8% industrial; 8–12% retail/office in healthy markets; 15–25% in distressed submarkets.
Operating expenses % of EGI
Property taxes, insurance, management, repairs, common area utilities, reserves. NNN leases push tenants to pay most of these.
Typical range: 25–40% on full-service gross leases; 8–15% on NNN where tenants pay opex directly.
LTV %
Loan-to-value. Commercial LTVs run lower than residential.
Typical range: 65–75% for stabilized assets; 55–65% for value-add or risky property types.
Interest rate %
Commercial mortgage rate. Usually 5–10yr fixed with 25–30yr amortization.
Typical range: 7–8.5% in 2026 for small-balance commercial; 6.5–7.5% for institutional CMBS.
Worked examples
Real scenarios with the math walked through line by line.
Small NNN retail strip
Scenario: $1.8M purchase, $180k gross rent, 7% vacancy, 12% OpEx on EGI (mostly NNN), 70% LTV at 7.75%.
Math: EGI = $180k × 0.93 = $167,400. NOI = $167,400 × (1 − 0.12) = $147,312. Cap rate = $147,312 ÷ $1.8M = 8.2%. Loan = $1.26M; debt service ≈ $116k/yr. Cashflow = $31k. CoC = $31k ÷ $540k = 5.7%. DSCR = $147k ÷ $116k = 1.27.
Outcome: Solid small-balance deal. 8.2-cap with positive leverage (cap rate > borrowing cost) and DSCR clears 1.20 — most lenders will fund this. Watch tenant concentration: if one of three tenants is 60% of rent, downgrade the deal a full cap rate.
Small office building
Scenario: $2.5M purchase, $260k gross rent, 18% vacancy (post-pandemic office market), 38% OpEx on EGI, 60% LTV at 8%.
Math: EGI = $213k. NOI = $132k. Cap = 5.3%. Loan = $1.5M; debt service ≈ $144k. Cashflow = −$12k. DSCR = 0.92.
Outcome: Doesn't pencil. Lender won't fund DSCR below 1.20; you'd need to put 50%+ down to make it work. Office in most US metros is a value-add story (re-tenant, convert, demolish), not a stabilized buy at 2019 prices.
Common mistakes
Where this calculation usually goes wrong in the real world.
- Valuing CRE off price per square foot instead of NOI ÷ market cap rate. PPSF is a sanity check, not a valuation method.
- Ignoring tenant concentration. A single tenant >40% of NOI cuts the buyer pool and adds 50–150bp to your required cap rate.
- Missing TI/LC (tenant improvements + leasing commissions) reserves. Each lease renewal typically costs $5–25/SF in concessions.
- Modeling NNN as zero-opex. Even pure NNN leases have landlord-side admin, vacancy carry, and capital reserves not passed through.
- Forgetting the cap rate is set by the market, not by you. Your exit value = future NOI ÷ then-prevailing cap rate. Cap rate expansion (rates going up) destroys IRR even when NOI grows.
When to use this calculator
- Underwriting a commercial deal before LOI submission.
- Sizing what you can pay for a building to hit a 7%+ unlevered yield.
- Negotiating with a seller — show them the cap rate their ask price implies vs. market.
- Refinancing a stabilized asset — re-run with new rate and updated NOI.
- Comparing direct CRE ownership against syndications or public REITs.
Glossary
Cap rate
NOI ÷ purchase price. The market-determined yield for stabilized commercial assets. Lower cap = higher price.
NNN (triple net)
Lease where tenant pays property tax, insurance, and maintenance. Landlord receives near-pure rent.
DSCR
Debt Service Coverage Ratio = NOI ÷ annual debt service. Commercial lenders require ≥1.20–1.30 to fund.
Positive leverage
When cap rate > borrowing cost. Required for cashflow on day one — most CRE buyers walk if leverage is negative.
TI/LC
Tenant Improvements + Leasing Commissions. Capital outlay required to land or renew a lease. Major hidden cost in office and retail.
More questions answered
What's a 'good' cap rate?
Depends entirely on asset class, market, and lease quality. Stabilized industrial in major metros: 5–6.5%. Retail strip: 6.5–8%. Small office: 7–9%. Hospitality: 8–10%. Single-tenant credit NNN (Walgreens, Dollar General): 5.5–6.5%. The rule: anything 200bp+ above the 10yr Treasury yield is normal; tighter than 200bp signals froth, wider signals risk.
How is commercial financing different from residential?
Recourse vs. non-recourse, balloon payments (typically 5–10yr fixed with 25–30yr amortization), DSCR-based underwriting (not borrower DTI), and full personal financial review even on LLC purchases. Expect 3–5% in closing costs plus a 1% origination fee — much more friction than residential.
Should I buy direct or invest in a syndication?
Direct ownership: you control everything, capture all upside, do all the work — and concentration risk is brutal at small portfolio size. Syndications: passive, diversified, but you eat 1–2% acquisition fee + 1.5% asset management fee + 20–30% promote. Direct beats syndication for IRR if you can find deals and aren't time-constrained; syndication beats direct for true passive investors above $250k of capital to deploy.
Related guides
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FAQ
What's a good cap rate for commercial property?
Class A urban industrial trades 5–6%, Class B multifamily 5.5–7%, suburban office 7–9%, single-tenant NNN retail 5.5–7% depending on tenant credit. Cap rates move with interest rates — what was a 'good' cap in 2021 is a different number in 2026.
What's the difference between cap rate and cash-on-cash?
Cap rate is unleveraged — NOI / price. Cash-on-cash is leveraged — annual cashflow after debt / cash invested. Always quote both.
Why does the calculator use a 5-year exit?
Most commercial deals are underwritten on a 5–10 year hold. Year-5 exit is the standard institutional baseline and matches typical bridge or 5-year fixed loan terms.
Does it model rent growth?
This is a year-1 stabilized model — it does NOT compound rent growth into the exit NOI. For a full pro forma with year-by-year rent escalators, build it out in Excel with this as your year-1 baseline.
Can I use this for syndications?
It's a good sponsor-side underwriting check. For LP-facing returns, layer on acquisition fees, asset management fees, the waterfall split, and refinance assumptions.
How this calculator is built
Independently maintained
Written by Sam Doshi and the RevenueLab editorial team. We don't sell the data feeds this tool is built on.
Sourced from primary data
Benchmarks come from public AdSense / Stripe / IRS disclosures and reader-submitted data — never third-party "$X per view" claims. Full methodology.
Last reviewed
June 2026. We re-check every figure on the platform on a rolling quarterly cycle.
Editorial standards
See our editorial policy and disclaimer. Results are estimates, not advice.