Real estate yield calculator. Reference formulas and models used by the profitability-analyst agent for quantitative investment return analysis. Use for requests involving 'Cap Rate', 'yield analysis', 'DCF', or 'cash flow analysis'. Tax advisory and loan underwriting are out of scope.
Enhances the profitability-analyst agent's investment return analysis capabilities.
Cap Rate = NOI / Purchase Price x 100
NOI (Net Operating Income) = Total Rental Income - Operating Expenses
Operating Expenses = Management Fees + Maintenance + Insurance + Taxes + Vacancy Loss
Example:
Purchase Price: $1,000,000
Annual Rental Income: $72,000 ($6,000/month)
Operating Expenses: $12,000
NOI: $60,000
Cap Rate: 60,000 / 1,000,000 x 100 = 6.0%
| Property Type | Cap Rate Range | Risk |
|---|---|---|
| Office (Prime) | 3.5-4.5% | Low |
| Office (Other) | 4.5-6.0% | Medium |
| Retail (Commercial) | 4.0-7.0% | Medium |
| Residential (Apartment) | 2.0-4.0% | Low |
| Logistics/Warehouse | 5.0-7.0% | Medium |
| Studio/Serviced Apartment | 3.5-5.5% | Medium |
Gross Yield = Annual Gross Rental Income / Purchase Price x 100
Net Yield = NOI / Purchase Price x 100
Typically Net Yield = Gross Yield x 0.7-0.85
(Operating expense ratio 15-30%)
Cash-on-Cash Return = Pre-Tax Cash Flow / Equity x 100
Pre-Tax Cash Flow = NOI - Annual Debt Service
Example:
Purchase Price: $1,000,000 (LTV 60% = Loan $600,000)
Equity: $400,000
NOI: $60,000
Annual Debt Service: $36,000 (3.5%, 30 years)
Pre-Tax Cash Flow: $24,000
Cash-on-Cash: 24,000 / 400,000 x 100 = 6.0%
| Item | Monthly | Annual |
|---|---|---|
| (+) Rental Income | $6,000 | $72,000 |
| (-) Vacancy Loss (5%) | -$300 | -$3,600 |
| (-) Management Fees | -$500 | -$6,000 |
| (-) Maintenance & Repairs | -$200 | -$2,400 |
| (-) Insurance | -$50 | -$600 |
| (-) Property Tax | -$150 | -$1,800 |
| (=) NOI | $4,800 | $57,600 |
| (-) Debt Service | -$3,000 | -$36,000 |
| (=) Pre-Tax Cash Flow | $1,800 | $21,600 |
Property Value = Sum of [NOI_t / (1+r)^t] + Terminal Value / (1+r)^n
Terminal Value = NOI_{n+1} / Exit Cap Rate
Variables:
r: Discount rate (typically 8-12%)
n: Holding period (typically 5-10 years)
Exit Cap Rate: Cap Rate at sale (typically +0.5% premium)
NOI Growth Rate Assumptions:
Conservative: 1-2% per year (inflation rate)
Baseline: 2-3% per year (rent escalation)
Optimistic: 3-5% per year (area growth)
| Item | Conservative | Baseline | Optimistic |
|---|---|---|---|
| Purchase Price | $1,000,000 | $1,000,000 | $1,000,000 |
| Initial Rent | $5,500/month | $6,000/month | $6,500/month |
| Vacancy Rate | 10% | 5% | 3% |
| Rent Escalation | 1%/year | 3%/year | 5%/year |
| Sale Price After 5 Years | $1,050,000 | $1,200,000 | $1,400,000 |
| 5-Year Total Return | 18% | 42% | 68% |
| Annualized Return | 3.4% | 7.3% | 10.9% |
| Metric | Attractive | Hold | Reject |
|---|---|---|---|
| Cap Rate | > 5% | 3-5% | < 3% |
| Cash-on-Cash | > 8% | 5-8% | < 5% |
| IRR | > 12% | 8-12% | < 8% |
| Payback | < 8 years | 8-12 years | > 12 years |
| DSCR | > 1.3 | 1.1-1.3 | < 1.1 |
| Item | Criteria |
|---|---|
| Yield Metrics | Cap Rate + Cash-on-Cash + IRR |
| NOI Accuracy | Itemized operating expense calculation |
| Leverage | Loan terms reflected |
| Scenarios | Conservative/Baseline/Optimistic (3 scenarios) |
| Benchmarking | Comparable property comparison |
| Exit Strategy | Exit Cap Rate assumption |