1.
Commercial Real Estate
Investing Terms
Successful commercial real estate investing is all about
the numbers. In order to evaluate and analyze a
commercial real estate investment, you should know and
understand a few important terms and equations.
Having this knowledge can increase your confidence and
help you to understand and hold your position in
negotiations.

2.
Here are some basic names, numbers, and equations you
will want to know:
TERMS
Cap Rate / Capitalization Rate: a measure of a property's
performance without considering the mortgage
financing.
NOI / Net Operating Income: the amount that's left over
after you collect all your income and pay out your
operating expenses
CCR / Cash-on-Cash Return: how much return you are
getting on the money you invested
Gross Income: all of your income from the property
(includes rents, late fees, laundry/vending machines,
etc.)
Effective Gross Income: anticipated income after
deducting an estimated amount for vacancies, bad debt,
etc.
Operating Expenses: includes taxes, insurance, utilities,
maintenance, supplies, etc.

3.
Debt Service: total of annual costs in principal, interest
and charges related to the mortgage.
Vacancy Rate: percentage of units in a building without
tenants
EQUATIONS
Cap Rate / Capitalization Rate:
NOI ÷ sales price = Cap Rate
NOI / Net Operating Income:
EGI -Operating Expenses = NOI
CCR / Cash-on-Cash Return:
Annual Cash Flow ÷ Initial Cash Investment = CCR
Gross Income:
Rents + Fees + Other Property Income = Gross Income
Effective Gross Income:
Gross Income – Vacancy Allowances = EGI

4.
Operating expenses:
Taxes + insurance + Maintenance + Supplies + Utilities +
Other Operational Costs = Operating Expenses
Debt Service:
Monthly Principal + Interest Charges x 12 = Debt Service
Vacancy Rate:
Number of Vacancies ÷ Number of Units = Vacancy Rate
To learn about one of the hottest markets for commercial real estate investing click here.