This is a free commercial real estate underwriting calculator published by Principal Advisors, a commercial real estate brokerage in Beaufort, South Carolina. It computes the core investment metrics for an income producing property: Effective Gross Income, Net Operating Income, going in cap rate, price per square foot, annual debt service, Cash Flow Before Taxes, cash on cash return, loan constant, debt service coverage ratio, debt yield, and a positive or negative leverage test. Every calculation runs live in your browser and no contact information is required to see any result.
The worksheet is the digital companion to the paper version printed in the Commercial Investment Starter Guide, and it uses the same labels and the same formulas. Enter the numbers from a listing flyer or an offering memorandum and the results update as you type. A built in stress test shows what happens to your coverage ratio and cash flow if occupancy drops.
When you are ready for a second opinion, you can submit your completed worksheet for The Principal Review: a licensed broker at Principal Advisors will underwrite the property and return a written analysis at no cost and with no obligation. You can also take the Commercial Readiness Quiz, download the Commercial Investment Starter Guide, or read about buyer representation.
What this worksheet calculates
Effective Gross Income
Gross Potential Rent minus vacancy and credit loss. It is the income a property actually collects, not the income the rent roll promises at full occupancy.
Net Operating Income
Effective Gross Income minus operating expenses. NOI is the single most important number in commercial real estate: it is what the property earns before debt, reserves, and income taxes. Mortgage payments, depreciation, and capital expenditures are not operating expenses.
Going in cap rate
Net Operating Income divided by purchase price. The cap rate expresses what the property earns as a percentage of what you pay for it, before any financing. It is the standard measure for comparing income properties.
Cash Flow Before Taxes
NOI minus capital reserves, minus the tenant improvement and leasing commission reserve, minus annual debt service. This is the cash the investment actually puts in your pocket each year before income taxes.
Cash on cash return
Cash Flow Before Taxes divided by total cash invested, meaning the down payment plus closing costs and due diligence. It measures the return on the actual dollars you put in, after financing.
Loan constant
Annual debt service divided by loan amount. The loan constant is the true annual cost of the debt, combining interest rate and amortization into one percentage.
Debt service coverage ratio
NOI divided by annual debt service. Lenders use DSCR to measure how comfortably the property's income covers the mortgage payment. Most lenders require a minimum in the range of 1.20 to 1.25.
Debt yield
NOI divided by loan amount. A lender's measure of how much income the property produces per dollar loaned, independent of interest rate and amortization. A common floor is roughly 10 percent.
The leverage test
Compare the going in cap rate to the loan constant. When the cap rate is above the loan constant, borrowing increases your return: positive leverage. When the loan constant is above the cap rate, every borrowed dollar lowers your return: negative leverage.
Want the full walkthrough with worked examples? Download the Commercial Investment Starter Guide. Not sure you are ready to underwrite a deal? Take the Commercial Readiness Quiz first, or read about buyer representation.