The 3 Commercial Real Estate Numbers Behind Million-Dollar Deals

Apply for Cohort 2 here: https://tally.so/r/EkEZXN

Residential real estate investors look at the numbers completely wrong when they try to jump into commercial. And if you're not careful, it can burn you badly.

In this video I break down the three most important numbers you need to understand before you buy your first commercial real estate deal. These are the same numbers I use every day underwriting industrial deals, and once they click, the whole game gets a lot less intimidating.

Here's what we cover:

Net Operating Income (NOI). The engine of the entire deal. Gross income minus expenses, before any debt. This is the number that determines what a property is actually worth.

Cap Rate. NOI divided by purchase price. We get into how cap rate works two ways, as a measure of risk and as a snapshot of your return that year, plus the difference between your going-in cap rate and your stabilized cap rate. This is the one that took me the longest to fully wrap my head around, so I try to make it simple.

Debt Service Coverage Ratio (DSCR). NOI divided by your annual debt payments. It's one of the first things a lender looks at, and it tells you whether the deal actually cash flows.

Commercial math isn't as complicated as people make it out to be. It really comes down to three questions. How much does the property make? How much are you willing to pay for that income stream? And does it make enough to support a mortgage?

That said, there are a lot of moving parts in a commercial deal, so never go do one solo as a beginner. Run it by people who have actually closed deals or find a mentor.

I just wrapped my first ever cohort, eight weeks teaching everything you need to buy your first commercial real estate deal, from finding it to financing it to closing it. Cohort two kicks off early to mid September with limited spots. If you want in, the application for Cohort 2 is here: https://tally.so/r/EkEZXN

Drop any questions about cap rate or anything else in the comments and I'll answer them.

If this helped, like and subscribe, and let me know if you want more breakdowns like this or more day in the life videos.


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