Real Estate Ratios Cheat Sheet
Core Property-Level Ratios
| Ratio | Formula | What It Tells You | Good Range |
|---|---|---|---|
| Cap Rate | NOI ÷ Property Value (or Purchase Price) | Unleveraged yield on a property | 4%–10% (varies by type/market) |
| Net Operating Income (NOI) | Gross Revenue – Operating Expenses | Property’s operating profitability | Higher is better |
| Cash-on-Cash Return | Annual Pre-Tax Cash Flow ÷ Total Cash Invested | Return on your actual cash investment | 8%–12% |
| Gross Rent Multiplier (GRM) | Property Price ÷ Annual Gross Rent | Quick price-to-rent screening tool | 8–15 (lower = cheaper) |
| Debt Service Coverage Ratio (DSCR) | NOI ÷ Annual Debt Service | Ability to cover mortgage payments | > 1.25x |
| Loan-to-Value (LTV) | Loan Amount ÷ Property Value | Leverage level | 60%–80% |
| Internal Rate of Return (IRR) | Discount rate where NPV of all cash flows = 0 | Total return including appreciation and cash flow | 12%–20% (value-add) |
| Equity Multiple | Total Distributions ÷ Total Equity Invested | How many times you get your money back | 1.5x–2.5x over hold period |
Revenue & Occupancy Metrics
| Metric | Formula | Use Case |
|---|---|---|
| Gross Potential Rent (GPR) | All units × market rent at 100% occupancy | Maximum theoretical revenue |
| Effective Gross Income (EGI) | GPR – Vacancy – Concessions + Other Income | Actual revenue after adjustments |
| Occupancy Rate | Occupied Units ÷ Total Units | Property utilization |
| Economic Occupancy | Actual Revenue ÷ Gross Potential Revenue | Revenue capture rate (accounts for concessions) |
| Revenue per Available Unit | Total Revenue ÷ Total Units | Revenue efficiency per unit |
| Rent Growth (YoY) | (Current Rent – Prior Rent) ÷ Prior Rent | Pricing power and market strength |
Operating Expense Ratios
| Ratio | Formula | Good Benchmark |
|---|---|---|
| Operating Expense Ratio | Operating Expenses ÷ EGI | 35%–50% (multifamily), 25%–40% (NNN commercial) |
| NOI Margin | NOI ÷ EGI | 50%–65% (multifamily), 60%–75% (NNN) |
| Cost per Unit | Total OpEx ÷ Total Units | Compare operational efficiency across properties |
| CapEx Reserve | Annual capital expenditure budget ÷ units | $250–$500 per unit per year (multifamily) |
Cap Rate by Property Type
| Property Type | Typical Cap Rate Range | Risk Level |
|---|---|---|
| Class A Multifamily (gateway cities) | 3.5%–5.0% | Lower |
| Class B/C Multifamily | 5.0%–7.5% | Medium |
| Office (CBD) | 5.5%–8.0% | Medium-High |
| Industrial / Logistics | 4.0%–6.0% | Lower |
| Retail (NNN) | 5.5%–7.5% | Medium |
| Hotels | 7.0%–10.0% | Higher |
| Self-Storage | 5.0%–7.0% | Medium |
Key Takeaways
- Cap rate is the most quoted metric in real estate — it measures unlevered property yield (NOI ÷ Value).
- DSCR must exceed 1.25x for most commercial lenders — below that, the loan won’t get approved.
- Cash-on-cash return measures your actual cash return after debt service — it accounts for leverage.
- Lower cap rates mean higher prices and lower risk (Class A assets in top markets).
- Always distinguish between going-in cap rate (at purchase) and exit cap rate (at sale) — they drive IRR sensitivity.
FAQ
What is a good cap rate for real estate?
It depends on asset class and location. Class A multifamily in top markets may trade at 4–5% cap rates. Suburban office or value-add properties may trade at 7–9%. Generally, lower cap rates indicate lower risk and higher prices. Compare cap rates to interest rates to assess the spread.
What is the difference between cap rate and cash-on-cash return?
Cap rate is an unlevered measure (NOI ÷ property value, ignoring debt). Cash-on-cash return is a levered measure (cash flow after debt service ÷ your equity invested). With favorable leverage, cash-on-cash return exceeds the cap rate.
What is NOI in real estate?
Net Operating Income equals property revenue minus operating expenses (property taxes, insurance, maintenance, management). It excludes debt service, capital expenditures, and income taxes. NOI is the equivalent of EBITDA for real estate.
How do you calculate IRR for a real estate investment?
List all cash flows: initial equity investment (negative), annual cash flows after debt service (positive), and net sale proceeds (positive at exit). Use the XIRR function in Excel with actual dates. Most value-add investments target 15–20% IRR; core deals target 8–12%.
What DSCR do lenders require?
Most commercial lenders require a minimum DSCR of 1.20x–1.25x, meaning NOI must be 20–25% above annual debt payments. SBA loans may accept 1.15x. Properties with higher risk profiles or shorter lease terms typically need higher DSCR coverage.