The Six Figures
Defined Plainly, Then Stress-Tested.
Cap rate
Net operating income divided by price
A property’s unlevered annual yield. A 6% cap on a $1,000,000 building means $60,000 of NOI before any debt service. It says nothing about your financing and nothing about growth.
How it gets flattered
By inflating the NOI in the numerator. The most common lever is property tax: marketed NOI usually reflects the seller’s assessed basis, and taxes reset when you buy. On one industrial flex deal, a marketed 6.75% cap was 4.75% once reassessment and real expenses were in.
Net operating income
Property revenue minus operating expenses
All revenue less all operating expenses — taxes, insurance, utilities, repairs, management, and reserves. It excludes mortgage payments, depreciation, and capital expenditures.
How it gets flattered
By omission. Management and replacement reserves are the two line items most often missing from a marketed expense stack, and both are real costs to you. On one deal, $108K of marketed NOI became $76.6K once we added them back and reassessed the taxes.
Cash-on-cash return
Annual cash after debt, divided by cash invested
Pre-tax cash flow after mortgage payments divided by the equity you actually put in. It is a cash yield on your own money for one year, not a lifetime return.
How it gets flattered
By quoting a stabilized year instead of year one, and by assuming a rent ramp or occupancy lift that hasn’t happened yet. Ask which year the number describes and what has to go right to reach it.
DSCR
NOI divided by annual debt service
How many times the property’s income covers its loan payments. 1.25× means income is 25% above the payment. Below 1.00× the property does not cover its own debt and the shortfall comes out of your pocket.
How it gets flattered
By running the seller’s NOI against a favorable loan. Use your rate, your amortization, and a re-underwritten NOI. On one deal a marketed 1.16× became 0.82× — the building did not carry its own debt at the asking price.
IRR
The annualized return that accounts for timing
The discount rate at which all projected cash flows, including the sale, net to zero. It rewards money that comes back sooner, which is why the hold period and the exit assumption dominate it.
How it gets flattered
By the exit assumption. A large share of a projected IRR usually comes from an assumed sale price years out, which is a guess about a future cap rate. Ask what the IRR becomes if the exit cap is 50 basis points higher than going-in.
Equity multiple
Total dollars returned divided by dollars invested
A 1.8× multiple means $180,000 came back on $100,000, including sale proceeds. Unlike IRR it ignores timing completely.
How it gets flattered
By stretching the hold period. A 2.0× over five years and a 2.0× over ten years are very different outcomes, and the multiple looks identical. Read it next to the hold period and the IRR, never alone.
In A Real Deal
The Same Building, Re-Underwritten.
One deal, three corrections
North Naples, FL — industrial flex, 4,170 SF
Nothing here was invented and nothing was hidden. Every correction came from a public record or a lease the seller had already produced. The marketed figures were simply never re-run for a new owner.
6.75% → 4.75%
Marketed cap rate, re-underwritten
$108K → $76.6K
Seller NOI, re-underwritten
1.16× → 0.82×
DSCR at the asking price
Verdict: Walk Away. The building did not cover its own debt at the asking price.
Start Here
Holding A Deal? Have The Numbers Checked.
We don’t tell you whether to invest. We tell you whether the building supports the numbers in the offering.
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