Commercial real estate (CRE) investing can serve as a powerful engine for long-term wealth creation, portfolio diversification, and passive income. Although it often demands more capital and specialized knowledge than residential real estate, CRE also offers unique advantages, including potentially higher returns and significant tax benefits. Whether you’re just exploring investing in commercial real estate …
The XIRR formula, included with Excel and other spreadsheet programs, is commonly used to measure investment performance in commercial real estate. The XIRR formula is popular because, unlike the IRR function, XIRR can handle irregular cash flow patterns. However, although XIRR is widely used, it is also widely misunderstood. In this article, we will take …
The Internal Rate of Return (IRR) is a fundamental measure of investment performance in commercial real estate. While IRR provides an overall picture of return, understanding the specific sources of this return—whether from operational cash flows or from the sale of the property—can provide deeper insights. Partitioning the IRR allows you to dissect the overall …
The loan to value ratio (LTV) is widely used in commercial real estate. It is calculated by dividing the loan amount by the value of the property and expressed as a percentage. In this article, we will review the loan to value formula, how to calculate LTV, its significance, and its use in real estate …
The yield on cost is a commonly used metric when evaluating real estate development and value-add projects. It is calculated as a property’s stabilized net operating income (NOI) divided by the total project cost. It’s easy to calculate and is useful as a back-of-the-envelope calculation. In this article, we’ll take a closer look at the …
The gross income multiplier is a metric used in commercial real estate valuation by analysts and appraisers. It is easy to calculate and requires little information, but it does come with some limitations. In this article, we’ll take a closer look at what the gross income multiplier means with several examples, including the potential gross …
Interpreting interest rates is not always as straightforward as it seems, and getting it right can have important implications for all parties involved in a commercial real estate transaction. Interest rates can take two forms: nominal interest rates and effective interest rates. As a result, there can be some confusion about what a quoted interest …
The sources and uses statement is important to understand in commercial real estate transactions. Yet, there is often a lot of confusion around what a sources and uses statement is and why it is needed. In this short article, we’ll take a look at the sources and uses statement, discuss how it is used in …
Equity waterfall models in commercial real estate projects are one of the most difficult concepts to understand in all of real estate finance. Cash flow from a development or investment project can be split in a countless number of ways, which is part of the reason why real estate waterfall models can be so confusing. …
The debt yield is becoming an increasingly important ratio in commercial real estate lending. Traditionally, lenders have used the loan to value ratio and the debt service coverage ratio to underwrite a commercial real estate loan. Now, the debt yield is used by some lenders as an additional underwriting ratio. However, since it’s not widely used …