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Real Estate Ratios Cheat Sheet

Real estate investing uses a distinct set of financial metrics that differ from equity or bond analysis. Whether you’re evaluating a rental property, analyzing a REIT, or underwriting a commercial deal, these ratios are the language of real estate finance. Master them and you can quickly assess any property’s investment potential.

Core Property-Level Ratios

RatioFormulaWhat It Tells YouGood Range
Cap RateNOI ÷ Property Value (or Purchase Price)Unleveraged yield on a property4%–10% (varies by type/market)
Net Operating Income (NOI)Gross Revenue – Operating ExpensesProperty’s operating profitabilityHigher is better
Cash-on-Cash ReturnAnnual Pre-Tax Cash Flow ÷ Total Cash InvestedReturn on your actual cash investment8%–12%
Gross Rent Multiplier (GRM)Property Price ÷ Annual Gross RentQuick price-to-rent screening tool8–15 (lower = cheaper)
Debt Service Coverage Ratio (DSCR)NOI ÷ Annual Debt ServiceAbility to cover mortgage payments> 1.25x
Loan-to-Value (LTV)Loan Amount ÷ Property ValueLeverage level60%–80%
Internal Rate of Return (IRR)Discount rate where NPV of all cash flows = 0Total return including appreciation and cash flow12%–20% (value-add)
Equity MultipleTotal Distributions ÷ Total Equity InvestedHow many times you get your money back1.5x–2.5x over hold period

Revenue & Occupancy Metrics

MetricFormulaUse Case
Gross Potential Rent (GPR)All units × market rent at 100% occupancyMaximum theoretical revenue
Effective Gross Income (EGI)GPR – Vacancy – Concessions + Other IncomeActual revenue after adjustments
Occupancy RateOccupied Units ÷ Total UnitsProperty utilization
Economic OccupancyActual Revenue ÷ Gross Potential RevenueRevenue capture rate (accounts for concessions)
Revenue per Available UnitTotal Revenue ÷ Total UnitsRevenue efficiency per unit
Rent Growth (YoY)(Current Rent – Prior Rent) ÷ Prior RentPricing power and market strength

Operating Expense Ratios

RatioFormulaGood Benchmark
Operating Expense RatioOperating Expenses ÷ EGI35%–50% (multifamily), 25%–40% (NNN commercial)
NOI MarginNOI ÷ EGI50%–65% (multifamily), 60%–75% (NNN)
Cost per UnitTotal OpEx ÷ Total UnitsCompare operational efficiency across properties
CapEx ReserveAnnual capital expenditure budget ÷ units$250–$500 per unit per year (multifamily)

Cap Rate by Property Type

Property TypeTypical Cap Rate RangeRisk Level
Class A Multifamily (gateway cities)3.5%–5.0%Lower
Class B/C Multifamily5.0%–7.5%Medium
Office (CBD)5.5%–8.0%Medium-High
Industrial / Logistics4.0%–6.0%Lower
Retail (NNN)5.5%–7.5%Medium
Hotels7.0%–10.0%Higher
Self-Storage5.0%–7.0%Medium
Analyst Tip
Cap rate and IRR tell different stories. Cap rate is a snapshot of current yield (like a dividend yield). IRR captures total return including rent growth, value appreciation, leverage effects, and exit proceeds over the entire hold period. Always model both. For REIT-specific metrics like FFO and AFFO, see the REIT metrics cheat sheet.

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.