The cap rate is the market cap rate at the time you plan on executing your exit strategy, either buying, selling or refinancing. Our recommendation for almost any commercial real estate deal is a minimum DSCR of 1.20.Ī cap rate (short for Capitalization Rate) tells you what the market will bear.You want a DSCR greater than 1 which indicates a commercial real estate property as cash flow positive.If you have an NOI of $50,000 and $50,000 in annual mortgage payments, the DSCR is 1 and you are just breaking even.As a New Investor, What is the First Thing I Need to Do on Any Deal?ĪLWAYS BE POSITIVE! Calculate the DSCR to ensure the debt coverage ratio is greater than 1. The commercial real estate property can only cover 90% of the annual commercial real estate financial debt payments. NO GO with Negative cash flow! In this scenario your debt service coverage ratio is below 1, which means you have negative cash flow and there is not enough cash flow to pay the property’s operating expenses and still have enough remaining to pay mortgage payments. We got you covered! If you have the same NOI of $50,000 but the annual mortgage payment is $55,000, your formula will look like this: 50,000 / 55,000 = 0.90 Which Commercial Properties Should I Avoid? Congratulations! The property will generate 1.25 times more (25% more) income than is required to pay the mortgage payments.In less than a minute, you have determined that the DSCR of 1.25 means you are cash flow positive!.DSCR is calculated by dividing the annual NOI: net operating income (your prospective commercial property’s income minus the commercial property’s expenses) by the annual commercial mortgage payments.įor example, if you have an NOI of $50,000 and annual mortgage payments of $40,000, the FAST and EASY formula will look like this: 50,000 / 40,000 = 1.25.The debt service coverage ratio measures the ability to pay the commercial real estate property’s mortgage payments and expenses from the income generated from the commercial real estate property.You can quickly and easily calculate the DSCR of every commercial real estate deal.Step #1: How do I determine quickly the Debt Service Coverage Ratio? (DSCR) Calculate your breakeven occupancy point. Determine what your debt coverage ratio is.ģ. WE MADE IT EASY: Find a viable Commercial Real Estate deal with only 3 points.ġ. Quickly determine in only 3 easy steps how a business purpose property will give you positive cash flow.
#COMMERCIAL MORTGAGE CALCULATOR PA HOW TO#
The key is how to find the right financing. MOVE FAST: You can quickly review 3 important and FAST steps to determine if a commercial property is right for you. This is a sure-fire way toward “analysis paralysis.”
We at Trim Financial have created a FAST and EASY Commercial Real Estate CALCULATOR just for you!ĭon’t waste your valuable time plugging in complicated commercial real estate financial metrics. How do I quickly evaluate any commercial real estate investment? EASY! THINK LIKE A COMMERCIAL LENDER!
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