Don’t Buy a Commercial Property Until You Run These Numbers
Episode notes
HOW TO ANALYZE A COMMERCIAL REAL ESTATE DEAL
In this episode, we cover:
— Net Operating Income (NOI)
— where every commercial real estate analysis begins
— How to calculate a property's real NOI instead of simply trusting the seller's numbers
— Cap Rate
— how to calculate it, compare properties, and understand when it can be misleading
— The relationship between cap rates, interest rates, risk, and property values
— Cash-on-Cash Return
— what you're actually earning on the cash you invested
— How leverage and debt service can turn an attractive property into a weak investment
— Internal Rate of Return (IRR)
— measuring your return across the entire investment and eventual sale
— Why your exit cap rate can dramatically change projected returns
— How to combine all four metrics into a practical buy-or-walk-away decision
— How to stress-test vacancy, rent growth, interest rates, and exit assumptions
— Five underwriting mistakes that can make a bad deal look good
The biggest lesson? Don't fall in love with the property before you understand the numbers. Commercial real estate investing isn't about how impressive a building looks or how exciting the opportunity sounds. Build your own model using actual leases and expenses, stress-test your assumptions, and be disciplined enough to walk away when the deal doesn't underwrite.
— Net Operating Income (NOI)
— Cap Rate Explained
— Cash-on-Cash Return
— Internal Rate of Return (IRR)
— Putting the Four Metrics Together
— Five Underwriting Mistakes That Make Bad Deals Look Good
— Key Takeaways & Closing
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