How to read this result
In the default example, cap rate is 7.50%. Results describe this input scenario; they are not a recommendation.
Change one assumption at a time to see how it affects the scenario. Compare periods and cost definitions consistently. Negative results show a modeled shortfall; an unavailable ratio needs a valid denominator.
Formula and methodology
Divide NOI by purchase price for cap rate. Deduct annual debt service for cash flow, then divide cash flow by invested cash for cash-on-cash. The operating income assumption is supplied directly.
Enter percentages as whole numbers: 5 means 5%. When used as a factor, the calculation divides a percentage by 100. Percentage outputs multiply the final ratio by 100. Calculations retain precision internally; displayed amounts and rates are rounded to two decimals.
Variables and input definitions
- Purchase price (USD)
- Property price. Minimum: 0.
- Annual NOI (USD/year)
- Stabilized NOI.
- Annual debt service (USD/year)
- User-entered debt service. Minimum: 0.
- Total cash invested (USD)
- Equity/cash invested. Minimum: 0.
Worked example
This example uses the exact prefilled inputs above. Reset defaults to restore this scenario after making changes.
| Item | Default scenario |
|---|---|
| Purchase price | $2,000,000.00 |
| Annual NOI | $150,000.00 |
| Annual debt service | $90,000.00 |
| Total cash invested | $600,000.00 |
| Item | Default scenario |
|---|---|
| Cap rate | 7.50% |
| Annual cash flow | $60,000.00 |
| Cash-on-cash return | 10.00% |
Assumptions and limitations
Does not calculate commercial loan terms, taxes or future sale value unless supplied in an optional scenario mode.
Results describe this input scenario; they are not a recommendation.
The tool uses values you supply. It does not retrieve market prices, verify leases or inspect a property. Results exclude items outside the listed inputs. Review local requirements and the relevant contract when a payment, fee or allocation depends on them.
Common mistakes
Do not enter after-debt income as NOI and then deduct debt service again. A property-level yield and an equity cash return have different denominators.
Sources and method references
These references provide context for the method and terminology. They do not endorse this tool or validate your property assumptions.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
Frequently asked questions
Does the commercial investment model select a loan?
No. Debt service and cash invested are user inputs. It does not calculate financing terms or approve lending.
Does annual cash-on-cash include a future exit?
No. It measures this annual cash-flow scenario and excludes sale proceeds and multi-year return calculations.