Formulas & Ratios Cheat Sheet

Gross Potential Rent (GPR)

GPR = Σ (market rent for every unit/space, fully leased, zero vacancy)

Example: 24 units averaging $1,162.50/month → GPR = $27,900/month = $334,800/year.

Effective Gross Income (EGI)

EGI = GPR − Vacancy & Credit Loss − Concessions + Other Income

Example: $334,800 GPR − $6,696 vacancy (2%) − $1,200 concessions + $7,800 other income = $334,704 EGI.

Net Operating Income (NOI)

NOI = EGI − Operating Expenses

Excludes debt service, capital expenditures, income tax, and depreciation — NOI is a property-level, capital-structure-neutral number.

Example: $334,704 EGI − $150,788 OpEx = $183,916 NOI.

Operating Expense Ratio (OER)

OER = Total Operating Expenses ÷ EGI

Example: $150,788 ÷ $334,704 = 45.05%.

Break-Even Occupancy

Break-Even Occupancy = (Operating Expenses + Annual Debt Service) ÷ Gross Potential Income

The occupancy level at which the property exactly covers its cash operating costs and debt service, with nothing left over. Below this, the deal is cash-flow negative.

Example: ($150,788 OpEx + $144,084 ADS) ÷ $342,600 GPI = 86.1% break-even occupancy.

Capitalization (Cap) Rate

Cap Rate = NOI ÷ Value (or Price)

Example: $183,916 NOI ÷ $2,600,000 price = 7.07% cap rate.

Value via Income Capitalization

Value = NOI ÷ Cap Rate

The algebraic flip of the cap rate formula — the standard way to translate a projected NOI into an estimate of value at a given market cap rate.

Example: $183,916 NOI ÷ 7.0% market cap rate = $2,627,371 estimated value.

Gross Rent Multiplier (GRM)

GRM = Price ÷ Gross Annual Rent

A quick screening ratio only — unlike cap rate, it ignores operating expenses entirely, so two properties with identical GRM can have very different NOI margins.

Example: $2,600,000 price ÷ $334,800 GPR = 7.77x GRM.

Price per Unit / Price per SF

Price per Unit = Price ÷ Unit Count Price per SF = Price ÷ Rentable SF

Example: $2,600,000 ÷ 24 units = $108,333/unit. $2,600,000 ÷ 17,100 SF = $152.05/SF.

Loan-to-Value (LTV)

LTV = Loan Amount ÷ Property Value

Example: $1,950,000 loan ÷ $2,600,000 value = 75% LTV.

Loan-to-Cost (LTC)

LTC = Loan Amount ÷ Total Project Cost

Used for development and heavy value-add deals, where cost basis (not stabilized value) is the more conservative denominator during construction/lease-up.

Example: $26,500,000 loan ÷ $38,500,000 TDC = 68.8% LTC.

Debt Service Coverage Ratio (DSCR)

DSCR = NOI ÷ Annual Debt Service

Below 1.00x means the property's own cash flow does not fully cover its debt payments.

Example: $183,916 NOI ÷ $144,084 ADS = 1.28x DSCR.

Debt Yield

Debt Yield = NOI ÷ Loan Amount

Unlike DSCR and LTV, debt yield ignores the interest rate and amortization schedule entirely — lenders use it as a rate-cycle-proof backstop, since DSCR alone can look fine purely because rates are low.

Example: $183,916 NOI ÷ $1,950,000 loan = 9.43% debt yield.

Loan Constant (Mortgage Constant)

Loan Constant = Annual Debt Service ÷ Loan Amount

Combines rate and amortization into a single annual percentage — useful for quickly sizing a loan against a target DSCR without a full amortization schedule.

Example: $144,084 ADS ÷ $1,950,000 loan = 7.39% loan constant.

Monthly Payment (Amortizing Loan)

Payment = P × [ r(1+r)ⁿ ] ÷ [ (1+r)ⁿ − 1 ]

P

= loan principal

r

= monthly interest rate (annual rate ÷ 12)

n

= total number of monthly payments (years × 12)

Example: $1,950,000 at 6.25%/30-yr: r = 0.0052083, n = 360 → payment ≈ $12,007/month ($144,084/year).

Maximum Loan Amount (Dual Constraint)

Max Loan = MIN[ Value × Max LTV%, NOI ÷ (Min DSCR × Loan Constant) ]

A lender almost always tests both an LTV ceiling and a DSCR floor and lends to whichever produces the SMALLER loan amount — the binding, or 'governing,' constraint.

Example: LTV test: $2,600,000 × 75% = $1,950,000. DSCR test: $183,916 ÷ (1.25 × 7.39%) = $1,991,000. LTV governs at $1,950,000.

Yield Maintenance (concept)

Yield Maintenance ≈ Present Value of [ (Note Rate − Reinvestment Rate) × Remaining Balance ] over remaining term

A prepayment penalty designed to make the lender economically indifferent to early payoff by compensating for the interest income it will no longer collect, discounted back at a current reinvestment benchmark (often a Treasury yield). It shrinks as the note rate and reinvestment rate converge, and can be small or even near zero if rates have risen since origination.

Example: A wide gap between a 6.25% note rate and a 4.00% reinvestment rate produces a large penalty; a narrow or inverted gap produces a small one.

Cash-on-Cash Return

Cash-on-Cash = Annual Pre-Tax Cash Flow ÷ Total Equity Invested

Example: $39,832 annual cash flow (NOI − ADS) ÷ $687,750 equity invested = 5.79%.

Equity Multiple

Equity Multiple = Total Cash Distributions Received ÷ Total Equity Invested

Unlike IRR, equity multiple ignores the timing of cash flows entirely — a 2.0x multiple over 3 years and a 2.0x multiple over 10 years are very different outcomes despite an identical multiple.

Example: $1,375,500 total distributions (operating cash flow + sale proceeds) ÷ $687,750 equity = 2.00x.

Internal Rate of Return (IRR)

IRR = the discount rate r that makes NPV = 0, i.e. Σ [ CFₜ ÷ (1+r)ᵗ ] = 0

CFₜ

= net cash flow in period t (initial investment is a negative cash flow)

IRR has no closed-form algebraic solution for most real cash flow series — it's solved by iteration (trial and error, or a financial calculator/spreadsheet's IRR function), not computed directly by hand.

Example: A deal investing $687,750 and returning $39,832/year for 5 years plus $1,180,000 net sale proceeds in year 5 solves to roughly a 16.2% IRR (verified: NPV ≈ $0 at that rate).

Net Present Value (NPV)

NPV = Σ [ CFₜ ÷ (1+r)ᵗ ] − Initial Investment

r

= the discount rate (required rate of return)

A positive NPV at your required discount rate means the deal is projected to earn more than that required return; a negative NPV means it falls short.

Example: Discounting the same 5-year cash flow stream at a required 12% return yields a positive NPV of roughly $125,400, confirming the deal clears a 12% hurdle (since its IRR of ~16.2% exceeds 12%).

Yield on Cost (Development Spread)

Yield on Cost = Stabilized NOI ÷ Total Development Cost

Example: $2,040,000 stabilized NOI ÷ $38,500,000 TDC = 5.30% yield on cost.

Development Spread

Development Spread = Yield on Cost − Market Exit Cap Rate

The premium a developer earns for taking on construction and lease-up risk versus simply buying a stabilized asset at the market cap rate. Development is typically only worth the risk when this spread is comfortably positive (often 100-200+ bps, depending on market and asset type).

Example: 5.30% yield on cost − 5.00% market exit cap rate = 30 bps of spread — thin, and would warrant scrutiny of whether the risk is adequately compensated.

Effective Rent

Effective Rent (per SF/year) = [ (Base Rent/SF/yr × Term) − TI Allowance/SF − Value of Free Rent/SF ] ÷ Term

Nets all landlord concessions (tenant improvement allowance, free rent) back into a single annualized rent figure — the number that actually compares apples-to-apples across leases with very different concession packages. All inputs are already expressed per square foot.

Example: $30/SF face rent, 5-year term, $10/SF TI, 3 months free ($7.50/SF): [($30 × 5) − $10 − $7.50] ÷ 5 = $132.50 ÷ 5 = $26.50/SF effective rent.

Weighted Average Lease Term (WALT)

WALT = Σ (Remaining Term × Rent) ÷ Σ (Rent)

Weighting by rent (rather than a simple average of lease terms) reflects that a large tenant's rollover risk matters more to overall cash flow than a small tenant's.

Example: Two tenants: 8 years remaining paying $200,000/yr, and 2 years remaining paying $50,000/yr → WALT = [(8×200,000)+(2×50,000)] ÷ 250,000 = 6.8 years.

Loss to Lease

Loss to Lease = Aggregate Market Rent − Aggregate In-Place (Actual) Rent

A positive loss to lease means in-place rents are below current market — embedded upside as leases roll and reset to market.

Example: $360,000 aggregate market rent − $334,800 in-place rent = $25,200 loss to lease (embedded upside).

Straight-Line Depreciation (Real Property)

Annual Depreciation = Depreciable Basis ÷ Recovery Period

Recovery period is 27.5 years for residential rental property and 39 years for nonresidential (commercial) property under current U.S. tax law. Land is never depreciable — only the building/improvement basis.

Example: $2,000,000 building basis (land excluded) ÷ 27.5 years = $72,727/year for a multifamily property.

1031 Exchange Boot (concept)

Taxable Boot ≈ MAX(0, Cash/Debt-Relief Received) that isn't reinvested into equal-or-greater replacement value and debt

To fully defer gain, a seller generally must reinvest into replacement property of equal or greater value AND replace any debt paid off (with new debt or additional cash). Any shortfall received as cash, or any net reduction in debt not offset by added cash, is 'boot' and is taxable to the extent of realized gain.

Example: Selling for $3,200,000 (paying off $1,180,000 debt) and buying replacement property for only $2,900,000 with $1,180,000 new debt creates $300,000 of cash boot, taxable up to the amount of realized gain.