CRE Financials Made Easy

Financials 101

Understanding the basic lingo around financials is an important topic to understand in the CRE world. Not having the basic knowledge can be intimidating and even scary. But no fear… here is a simple version

Simple Return on Investment (ROI) Explained

Return on investment measures how much money, or profit, is made on an investment as a percentage of the cost of that investment. As an example, if you made $10,000 from a $1000 investment, your ROI would 90%. So, what is a good ROI? Depends on the person's risk level but on average (according to the S&P 500 Index as of October 2022) an annual ROI on Commercial Real Estate is 9.5%.

CAP Rate Explained

Cap Rate helps evaluate the net operating income (NOI) produced by an income property. The simple calculation is (Net Operating Income / Total Property Price) X 100%. What is a good CAP Rate for CRE? It varies greatly based on the type of property, its location along with current market conditions. It also depends on the tolerance for a specific investment, but on average a decent CAP rate ranges between 3%-10%, again based on the factors above.

Download a free spreadsheet with these formulas and others.

YDS Finacial Calculation Worksheet
Download XLSX • 30KB

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