Commercial Real Estate Evaluation Ratios

Evaluation Ratios pic

Evaluation Ratios

Prior to forming the national investment firm Ashcroft Capital, financial services professional Frank Roessler worked at M&A Real Estate Partners, where he assisted with acquisitions including underwriting and due diligence. As the principle of Ashcroft Capital, Frank Roessler utilizes his years of experience and extensive network of brokers and property managers to identify multifamily real estate investment opportunities with a high risk/return ratio.

There are a variety of ratio calculations investors can use to evaluate a property, including:

Capitalization Rate. The capitalization rate is a risk and reward calculation where a higher rate indicates more risk, and thus, a higher potential return. The capitalization rate evaluates the property’s performance for only the first year.

Operating Ratio. This ratio compares the annual income to what’s required to cover the property’s operating expenses (including debt). An operating ratio above 100 indicates the property’s annual income is not covering expenses.

Debt Coverage Ratio. This calculation is used to determine if a property will be able to cover operating expenses plus mortgage payments. An accurate debt coverage ratio requires all income and all expenses be identified.


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